Core views:
The Bank of Suzhou released its 2023 annual report and the report for the first quarter of 2024. Revenue, PPOP, and profit to mother grew by 0.9%, -3.8%, and 17.4%, respectively; 24Q1 revenue, PPOP, and net profit to mother increased 2.1%, -1.8%, and 12.3% year-on-year, respectively. Judging from the cumulative performance drivers for 23 years, the expansion of scale, and reduction in other revenue and expenses, and provision accounts contributed positively. Factors such as the narrowing of net interest spreads, net handling fee revenue, and the increase in the cost-revenue ratio caused a certain drag. The 2024Q1 performance drivers are basically similar to those in '23. Other non-interest contributions have increased, and the fee drag has intensified.
Highlights: (1) The scale of deposits and loans has increased rapidly. The company's loans increased 17.1% year on year, and 24Q1 continued to grow at a high rate of 19.8%. Structurally, 24Q1 retail loans may have been dragged down by mortgage loans, and the year-on-year growth rate for public loans reached a high level of 28%. It is expected that manufacturing, leasing and commercial services industries will maintain high growth; on the debt side, the company's 24Q1 deposits increased 16.4% year on year, up from 23. Deposit growth was better than that of peers. (2) The defect rate is stable, and the attention rate is declining. The company's 24Q1 defect rate was 0.84%, the same as in '23. The attention rate in '23 was 0.81%, down 3 bps from the end of 23Q3, the overdue rate of 0.72%, down 1 bps from the end of 23Q2. The 24Q1 company's attention rate continued to drop 4 bps, and the performance was better than that of its peers. By sector, the non-performing ratio of public loans was 0.75% in '23, down 24 bps from year on year, and the manufacturing and real estate industries improved markedly; the non-performing ratio of retail loans was 1.02%, up 34 bps year on year, and the non-performing ratio of consumer loans and operating loans rose. (3) High growth in other non-interest rates in 24Q1. The company's other non-interest income increased 57.1% year-on-year in 24Q1. The main contribution came from the fluctuation of financial investment business in an environment of declining interest rates.
Concern: (1) Interest spreads continue to narrow. The net interest spread for '23 and 24Q1 was 1.68%/1.52%, respectively. The net interest spread for '23 was 3 bps narrower than 23Q1 to 3. The main pressure came from falling loan yields and rising deposit costs under regularization. In 24Q1, interest spreads continued to narrow by 16 bps under downward pressure on stock loan repricing and interest rates on new loans. Looking ahead, asset-side returns are expected to remain under pressure, but the repricing pressure is mainly concentrated in Q1, and the subsequent decline is expected to slow significantly; on the debt side, term deposits due from Q2 to Q4 account for 19% of total deposits, and deposit costs are expected to remain rigid. (2) Bad generation has increased, and provision coverage has declined. The 24Q1 defect generation rate was 0.48%, up 17 bps year on year, and provision coverage rate was 491.66%, down 31.11pct from '23. (3) Negative increase in net revenue from handling fees.
The year-on-year growth rate of the company's net handling fee revenue in '23/24Q1 was -6% and -29.5%, respectively. Agent wealth management revenue and settlement fee revenue declined in '23. At the same time, due to fee cuts in banking insurance channels, agency business revenue declined sharply in the second half of the year, and the decline in the high base in 24Q1 widened further.
Profit forecast and investment advice: The company's net profit growth rate for 24/25 is expected to be 13.7%/8.9%, EPS is 1.43/1.55 yuan/share, respectively, and BVPS is 11.75/12.91 yuan/share respectively. The current stock price is 5.00X/4.59X for 23/24 PE, respectively, and 0.61X/0.55X for 23/24 PB respectively. Refer to the company's PB valuation center and fundamentals, maintain the company's reasonable value of 10.60 yuan/share, corresponding to the 24-year PB valuation of 0.9X, and maintain the “buy” rating.
Risk warning: (1) economic growth declined beyond expectations; (2) asset quality deteriorated sharply; (3) loan investment fell short of expectations; (4) increased deposit competition led to a sharp rise in costs.