Incidents:
Industrial Bank announced its quarterly report for the year 24. In 24Q1, it achieved revenue of 57.751 billion yuan, +4.22% year over year, growth rate +9.42PCT compared to year 23; net profit to mother was 24.336 billion yuan, -3.10% year over year, and +12.51PCT compared to year 23. Net revenue from processing fees and commissions for 24Q1 was $6.198 billion, -18.99% year-on-year, and the growth rate was +19.39PCT in '23.
Public loans drive overall credit, increasing the share of demand deposits
Societe Generale Bank's net interest income in 24Q1 was +5.09% year-on-year, and the growth rate was +4.24PCT compared to '23. Judging from performance attribution, the 24Q1 interest-bearing asset size expansion and net interest spreads contributed +6.92% and -1.83%, respectively, continuing the logic of volume compensation as a whole. In terms of credit investment, as of the end of 24Q1, Industrial Bank's loan balance was 5.55 trillion yuan, +7.91% year-on-year, and the growth rate was 1.68 PCT compared to 23. The decline in loan growth is mainly due to the fact that the current demand for effective financing is still weak. In 24Q1, Industrial Bank provided +2171.45, -1008.55, and -29.973 billion yuan in public loans, -1008.55 billion yuan, and -29.973 billion yuan, respectively, compared to -184.52, -385.89, and -14.171 billion yuan, respectively. Overall, investment in public credit is still the main driver, and it is expected to mainly invest in areas encouraged by policies such as infrastructure. On the debt side, Industrial Bank's deposit demand ratio has increased. As of the end of 24Q1, Industrial Bank's current accounts for 37.76%. Compared with +1.80PCT at the end of '23, it is estimated that there are more surviving funds under the “commercial bank+investment banking” system.
Interest spreads are still resilient
In terms of net interest spreads, Societe Generale's 24Q1 net interest spread was 1.87%, compared to 23-6BP. The decline in interest spreads is expected to be mainly dragged down by the asset side. According to our estimates, Societe Generale Bank's average yield on interest-bearing assets in 24Q1 was 4.45%, compared to 23-15 BP. The decline in asset-side returns is mainly due to: 1) strong repricing pressure in 24Q1 after the LPR cut in '23; 2) Industrial Bank added 86.317 billion yuan in credit in 24Q1, of which an additional 217.145 billion yuan was added to public credit. It is expected to focus mainly on areas of policy support such as infrastructure and science and innovation.
However, competition in these fields is fierce, and loan interest rates are under pressure; 3) The impact of the reduction in stock mortgage interest rates at the end of 23Q3 still needs to be further digested. On the debt side, Industrial Bank is guided by stabilizing scale and reducing costs, absorbing low-cost deposits and reducing pressure on high-cost deposits. The deposit interest rate decreased by 12BP to 2.12% year over year in 24Q1.
Overall asset quality is stable, and the pressure to generate defects may have increased. As of 24Q1, Industrial Bank's non-performing rate and attention rate were 1.07% and 1.70% respectively. Compared with the end of the previous year, the overall asset quality was relatively stable. In terms of provisions, there has been a slight decline in the strength of the Industrial Bank's provision plan increase. As of the end of 24Q1, Industrial Bank's loan ratio was 2.53%, compared to 23-9BP.
The 24Q1 provision coverage rate of Societe Generale Bank was 245.51%, +0.30PCT at the end of the previous year, and the risk compensation capacity was sufficient. Taken together, Industrial Bank's non-performing rate is basically the same as its provision rate, but credit impairment losses have increased significantly, and it is expected that the pressure to generate mainly bad debts is still high. Industrial Bank's credit impairment loss in 24Q1 was $16.50 billion, +46.03% year-on-year.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2024-2026 to be 216.267 billion yuan, 225.180 billion yuan, and 235.798 billion yuan respectively, with year-on-year growth rates of +2.58%, +4.12%, and +4.72%, respectively, and a 3-year CAGR of 3.80%.
Net profit attributable to mother was 79.396 billion yuan, 82,446 billion yuan, and 86.995 billion yuan respectively. The year-on-year growth rates were +2.96%, +3.84%, and +5.52%, respectively, and the 3-year CAGR was 4.10%. As the company's “commercial bank+investment bank” continues to advance, we maintain a target price of 20.35 yuan, maintaining a “buy” rating.
Risk warning: Steady growth falls short of expectations, and asset quality deteriorates.