Key points of investment
The Shanghai Agricultural Commercial Bank is operating steadily and has sufficient capital, and is expected to achieve mid-term dividends and continued high dividends in 2024.
Overview of the data
The net profit of the Shanghai Agricultural Commercial Bank increased 1.5% year on year in 24Q1, down 9.2pc from 23A; revenue increased 3.7% year over year, and the growth rate increased 0.6 pc compared to 23A. The Shanghai Agricultural Commercial Bank's defect rate at the end of 24Q1 increased by 2 bps to 0.99% compared to the end of 23Q4, and the provision coverage rate decreased by 23pc to 382% compared to the end of 23Q4.
Profit growth is slowing
① The net profit of the Shanghai Agricultural Commercial Bank increased 1.5% year-on-year in 24Q1. The growth rate fell 9.2pc from 23A, mainly affected by the increase in depreciation accrual. Asset impairment losses increased 72.2% year on year in 24Q1, and impairment increased year on year. The judgment was mainly affected by the one-time factor of increasing impairment accrual of non-credit assets. ② The revenue of the Shanghai Agricultural Commercial Bank is relatively stable. In 24Q1, the revenue of the Shanghai Agricultural Commercial Bank increased 3.7% year on year, and the growth rate was 0.6 pc higher than 23A. The main supporting factors came from a sharp increase in other non-interest-free growth rates. Other non-interest-bearing sales increased 66% year over year in 24Q1, up 39pc from 23A, mainly due to the high year-on-year increase in bond investment income and one-time asset disposal profit and loss. Looking ahead to the whole year, considering the high and low profit growth base of the Shanghai Agricultural Commercial Bank in 2023, the profit growth rate is expected to pick up slightly in the second half of the year.
Interest spreads narrowed slightly
It is estimated that the 24Q1 single-quarter interest spread (initial and end caliber, same below) decreased by 2 bps to 1.48% month-on-month. The decline in interest spreads was mainly affected by the decline in return on assets. Specifically: ① The return on assets fell 9bp to 3.32% month-on-month in a single quarter in 24Q1, and the judgment on the decline in return on assets was affected by price and structure. On the one hand, the repricing of stock loans and interest rates on new loans are still declining; on the other hand, the share of loans with higher yields has declined, and the month-on-month growth rate of 24Q1 loans is 2.2 pc slower than the growth rate of interest-bearing assets. ② In 24Q1, the debt cost ratio fell 16 bps month-on-month to 1.99%. The judgment was due to the favorable release of lower deposit interest rates. Since the size of interest-bearing debt is lower than that of interest-bearing assets, the improvement in debt cost ratios does not fully hedge the impact of the decline in asset-side returns.
Looking ahead to the whole year, the reduction in interest spreads of the Shanghai Agricultural Commercial Bank in 2024 is expected to be better than in 2023, mainly due to the favorable release of lower deposit interest rates and restrictions on ultra-low interest rate loan investment by the People's Bank of China since the end of 2023.
Defective slight fluctuation
① At the end of 24Q1, the defect rate was +2bp to 0.99%, and remained below 1%; in terms of forward-looking indicators, the attention rate at the end of 24Q1 was +3bp to 1.27% month-on-month. Bad news and concerns have fluctuated. The reason behind this is judged to be a rise in risk pressure in fields such as real estate and online consumer loans. ② At the end of 23Q4, the provision coverage rate decreased by 23pc to 382% month-on-month. The level of provision is at a high level in the industry, and there is still room for provision to feed back profits.
The dividend rate is maintained at 30% +
① In 2023, the Shanghai Agricultural Commercial Bank maintained a dividend ratio of 30% +, corresponding to the 2023 dividend rate of 5.7%, and still has a high allocation value. ② The Shanghai Agricultural Commercial Bank proposed a 2024 mid-term dividend bill. The interim dividend condition is positive net profit for the half year 2024. The overall operation of the Shanghai Agricultural Commercial Bank is steady, and dividends are expected to be realized in mid-2024. In the long run, considering that the Shanghai Agricultural Commercial Bank has sufficient capital, there is room for improvement in the dividend ratio for 2024 and subsequent years. It can be seen that at the end of 24Q1, the Shanghai Agricultural Commercial Bank's core Tier 1 capital adequacy ratio reached 14.49%, far exceeding the regulatory bottom line requirements, and is at a high level of listed banks.
Profit forecasting and valuation
The net profit of the Shanghai Agricultural Commercial Bank is expected to increase 4.4%/6.5%/7.6% year-on-year in 2024-2026, corresponding to BPS of 12.73/13.70/14.76 yuan. The current price corresponds to 0.52/0.48/0.45 times the 2024-2026 PB valuation. The target price is 8.19 yuan/share, corresponding to 0.64 times the 24-year PB, with a current price space of 24%, maintaining a “buy” rating.
Risk warning: The macroeconomic economy has stalled, and there has been a sharp outbreak of malaise.