Incident: On April 26, the Chongqing Agricultural Commercial Bank released its 2024 quarterly report. 24Q1 achieved cumulative revenue of 7.1 billion yuan, YoY -2.9%; net profit to mother of 3.5 billion yuan, YoY -10.8%; non-performing ratio of 1.19%, and provision coverage rate of 368%.
Profit before provision was +5.5% year-on-year due to significant savings in business management fees. In 24Q1, the revenue, profit before provision, and net profit attributable to mother were -2.9%, +5.5%, and -10.8%, respectively. The growth rates were +0.7 pct, +12.3 pct, and -16.9 pct, respectively, compared with 23 years.
The profit growth rate before provision was significantly higher than the revenue growth rate, mainly due to savings in the company's expense-side business management fees. 24Q1 business management fees decreased 20.5% year-on-year, and costs and revenue decreased by 6.7 pcts compared to 23 years.
The growth rate of net profit attributable to mother declined a lot, mainly affected by changes in the intensity of impairment. It can be seen that 24Q1 company's profit before provision increased 5.5% year on year, while asset impairment losses were 10 times higher than in the same period in '23. Impairment preparations have improved significantly. On the one hand, the company disposed of and recovered a large amount of non-performing assets in 23Q1, making the base low; on the other hand, there are also careful considerations made by the company.
Looking at the revenue breakdown, 24Q1 net interest income was -9.2% year-on-year, compared to -1.7 pct at the end of '23. The judgment was still mainly affected by the narrowing of net interest spreads. Earnings resumed positive growth, +0.2% year-on-year in 24Q1. Other non-interest income continued to perform well, +46.7% year over year, mainly due to increased investment income.
Loan growth has declined, and net interest spreads are resilient. In terms of scale, the total assets, loan amount, and total deposits of the Chongqing Agricultural Commercial Bank were +4.1%, +4.9%, and +5.9% year-on-year in 24Q1. Personal loans are a major drag on the growth rate of loans from the Agricultural Commercial Bank of Chongqing. The 24Q1 increase was only 1.4% year-on-year. Combined with the increase in the non-performing rate of personal loans in the 23 annual report, we believe that the slowdown in personal loan investment is a rational choice. In terms of pricing, the 24Q1 net interest spread (calculated caliber) slightly increased by 1 BP compared to 23Q4 (estimated caliber). Considering, on the one hand, the effects of multiple deposit cuts in 23 years began to show. On the other hand, the company also prioritized projects with relatively high returns at the beginning of the year.
The defect rate remained stable, and provision coverage increased slightly. The defect rate at the end of 24Q1 was the same as 1.19% at the end of 23. The provision coverage rate increased slightly by 0.8 pct to 368% from the end of 23, the loan ratio remained the same as at the end of 23 at 4.4%, and risk offsetting capacity remained at a sufficient level.
Investment advice: Asset quality is relatively stable, debt costs are expected to improve, and the Chongqing Agricultural Commercial Bank is deeply involved in mainland Chongqing, and has strong advantages in terms of geographical connections and network distribution. While actively serving major regional projects in recent years, inclusive finance business advantages are still stable; digital transformation is progressing steadily, and business management fees are expected to continue to decline; although impairment preparations affect current profit performance, asset quality is more solid; benefiting from lower deposit listing prices, debt-side costs are expected to improve further. EPS for 24-26 is expected to be 0.93, 0.96, and 1.02 yuan respectively. The closing price on April 26, 2024 corresponds to 0.4 times 24-year PB, maintaining the “recommended” rating.
Risk warning: Macroeconomic growth is declining; asset quality is deteriorating; the decline in net interest spreads in the industry exceeds expectations.