Incidents:
On April 29, the Bank of Beijing released its 2024 quarterly report, achieving operating income of 17.69 billion yuan, up 7.8% year on year, and achieving net profit of 7.86 billion yuan, up 5% year on year; 24Q1 weighted average return on net assets was 12.4%, down 0.37 pct year on year.
Comment:
The low base effect and stable operating margins together contributed to a marked improvement in 1Q performance growth. The year-on-year growth rates of the company's 24Q1 revenue, profit before provision, and net profit to mother were 7.8%, 9.7%, and 5%, respectively, up 7.2, 12.7, and 1.5 pcts from 2023. Among them, the year-on-year growth rates of net interest income and non-interest income were 1.9% and 27.1%, respectively, up 4.1 and 16.6pct from 2023; credit impairment, revenue, and cost to revenue ratios were 21.7% and 26.4%, respectively, with changes of 2.8 and -1 pct respectively over the same period last year. The year-on-year profit growth structure was split, with scale expansion and non-interest as the main contributors, driving performance growth rates of 17.3 and 14.2 pct, respectively. Looking at marginal changes:
1) The recovery in performance growth mainly benefits from: ① the negative drag on net interest spreads has narrowed markedly; ② non-interest income has changed from negative contributions to positive contributions; ③ the company has increased various cost controls, and the negative cost drag has also narrowed; 2) the main performance drag includes: ① the decline in contribution to the expansion of interest-bearing assets; ② the negative drag on provision has increased.
The company looks ahead and considers potential risks, and has improved its reserve schedule to avoid large fluctuations in performance due to centralized accounting.
The increase in loans remained the same as in the same period last year, and loans in key areas continued to increase at a high rate. In 24Q1, the company added 70 billion dollars in interest-bearing assets in a single quarter, a year-on-year decrease of 10.3 billion dollars. The year-on-year balance growth rate decreased slightly by 0.6 pct to 10.6% from the beginning of the year.
1) Looking at the investment structure of interest-bearing assets, 1Q added loans, financial investments (excluding transactional financial assets, same below), and interbank assets of 104.4 billion yuan, -6.4 billion yuan, and -28 billion yuan respectively. Among them, loans increased by 2.6 billion yuan year-on-year, financial investment decreased by 56.6 billion yuan year-on-year, and interbank assets decreased by 43.7 billion yuan year on year; loan balances grew 11.6% year on year, slightly down 0.5 pct from the beginning of the year.
2) Judging from the credit investment structure, the Bank of Beijing is further concentrating public credit resources in key areas such as science, innovation, and green, and online consumer loans and car loans on the retail side are booming. Specifically: ① Enterprise side: In 24Q1, corporate loans increased by 90.9 billion yuan, a year-on-year decrease of 1.7 billion dollars. Among them, loans for science and innovation finance, green finance, and cultural finance increased by 46.2 billion, 23.9 billion, and 10.9 billion dollars respectively over the same period last year; the three loans increased by a total of 81 billion dollars, accounting for 89% of the new corporate loans. ② Retail side: The retail business is in a low season. Combined with high interest rates on mortgage loans in Beijing, retail loans as a whole may face some pressure to repay early. However, specific types of personal loans have maintained a relatively rapid growth trend. The year-on-year growth rate of online consumer loans “Beijing-e loans” was 335%, up 37 pcts from the beginning of the year, and car loan balances grew 114% year on year, far higher than the growth rate of general loans.
Deposit growth was better than in the same period last year, and retail deposit growth was relatively good. The company added 1161 billion dollars in interest-paying liabilities in 1Q, an increase of 14.7 billion dollars over the previous year, and the year-on-year growth rate of the balance increased by 0.1 pct to 11.6% compared to the beginning of the year. Judging from the structure of new interest-paying liabilities, the amount of new deposits, bonds payable, and interbank liabilities in 1Q was 110.9 billion yuan, -16.3 billion yuan, and 21.4 billion, respectively. Among them, deposits and interbank liabilities increased by 29.3 billion yuan and 11.6 billion yuan, respectively, and bonds payable decreased by 262 billion yuan year on year; deposit balances grew 9.3% year over year, up 1.1 pct from the beginning of the year. Further examining the deposit structure, corporate deposits and savings deposits increased by 53.1 billion dollars and 50.8 billion dollars respectively. Among them, corporate deposits decreased by 11.5 billion dollars over the same period last year, and retail deposit growth was significantly better than the same period last year. The company leverages the advantages of public-private linkage, and the 1Q escrow amount reached 39.4 billion dollars (YoY +8%), promoting the accumulation of low-cost savings deposits.
The 24Q1 net interest spread is estimated to be 7 bps narrower than in 2023 to 1.49%, mainly dragged down by the asset side. In 24Q1, it was estimated that the company's net interest spread was 1.49%, 7 bps narrower than in 2023; among them, the return on interest-bearing assets and the interest-paying debt cost ratio were 3.66% and 2.20%, respectively, down 7 bps and 1 bps from 2023, respectively. From the asset side, the expected pressure is mainly due to rolling repricing. Considering that mortgage interest rates in Beijing are basically implemented according to the lower interest rate limit at the time of issuance, the impact of stock mortgage interest rate cuts on the company is limited; from the debt side, due to factors such as further release of deposit listed interest rate reduction dividends and retail transformation driving the deposition of low-cost capital, the average retail deposit interest rate fell 7 bps from the beginning of the year, driving an improvement in comprehensive debt costs.
The narrowing decline in handling fee revenue supported the strengthening of non-interest income. The share of non-interest income increased by 4 pct to 28% compared to the same period last year. The company's 24Q1 non-interest revenue increased 27% year-on-year to 4.92 billion, 16.6pct higher than in 2023. Among them, net handling fees and commission revenue fell 16% year on year to 1.16 billion, up 30.8 pct from 2023. Affected by factors such as increased capital market fluctuations and “integrated reporting and banking” of banking insurance channels, fee revenue continued to grow negatively, but the decline narrowed markedly; net other non-interest income increased 51% year over year to 3.76 billion yuan, down 11.6 pcts from 2023. Interest rates in the 24Q1 bond market declined markedly, leading to good growth in bond valuation income. 24Q1 investment income and fair value change profit and loss reached 3.46 billion and 260 million respectively, with year-on-year increases of 1.11 billion and 240 million yuan respectively.
The non-performing loan ratio continues to decline, and risk offsetting capacity remains high. At the end of 24Q1, the Bank of Beijing's non-performing loan balance was 27.8 billion yuan, up 1.2 billion dollars from the beginning of the year. The non-performing loan ratio was 1.31%, down 1 bps from the beginning of the year. Although bad exposure increased, the continued high increase in loans drove the non-performing loan ratio to a further decline. In terms of provision, 1Q accrued credit impairment losses of 3.84 billion, an increase of 730 million, and credit impairment loss/average total assets (annualized) of 0.4%, an increase of 4 bps; provision balance was 59.2 billion, up 1.6 billion from the beginning of the year; provision coverage rate was 213.1%, down 3.7 pct from the beginning of the year; the loan ratio was 2.79%, down 7 bps from the beginning of the year, and risk offsetting capacity remained high.
The growth rate of RWA has increased, and capital adequacy ratios at all levels have declined. At the end of 24Q1, the company's core Level 1, Level 1, and capital adequacy ratios were 9.11%/11.95%/13.12%, respectively, down 9/24/25 bps from the beginning of the year; RWA's year-on-year growth rate was 13.2%, up 1.9 pcts from the beginning of the year. The higher RWA growth rate is expected to be related to the implementation of the “New Capital Regulations”, and the intensity of capital consumption has increased.
The increase in shareholders' holdings shows confidence, and further increases are not ruled out in the future. Beijing State-owned Company, the company's second-largest shareholder, and Xintai Life Insurance, the fourth largest shareholder, increased their shares of the company's common shares by 0.42 million shares and 356 million shares respectively in 24Q1. The shareholding ratios at the end of 1Q were 8.92% and 4.7% respectively, up 0.2 and 1.7 pct respectively from the beginning of the year. Since the beginning of 2024, against the backdrop of rapid decline in interest rates in the bond market and increased control of debt costs in the banking industry, etc., the pressure on high-quality “asset shortages” in the capital market has clearly intensified, and high-dividend assets represented by banks have highlighted the high investment cost ratio.
As of April 29, the banking sector had a cumulative increase of 15.6% since the beginning of the year, outperforming the Shanghai and Shenzhen 300 Index by 10pct; among them, the Bank of Beijing rose 22.1%, outperforming the A-share bank index by 6.5 pcts, ranking 7/42nd among A-share listed banks.
According to the Bank of Beijing's 2023 profit distribution plan, it is proposed to pay 0.32 yuan per share. The dividend rate corresponding to the current stock price is 5.8%. Considering the company's steady performance growth in 2024 and the relatively stable dividend ratio, the dividend yield is expected to increase further, and the dividend rate is expected to reach 6% or more in 2024. As a typical “undervalued, high dividend” variety, Bank of Beijing is attractive to investors seeking long-term absolute returns. After the company's major shareholders increase their holdings in 24Q1, it is expected that they will receive better yields in the future, and the possibility of further increases in holdings in the future is not ruled out.
Profit forecasting, valuation and ratings. The Bank of Beijing is deeply involved in the capital, and economically developed regions such as Beijing, Yangtze River Delta, and Pearl River Delta account for more than 70% of loans. Retail transformation has continued to advance in recent years. Since 2022, the “five major transformations” have been accelerated, the revenue contribution of the retail business has increased, and it is expected that the effects of retail transformation will continue to be unleashed in the future. Maintaining the company's 2024-2026 EPS forecast of 1.28/1.35/1.41 yuan, the current stock price corresponding to the PB valuation is 0.43/0.40/0.37 times, respectively, maintaining the “buy” rating.
Risk warning: If the macroeconomic economy declines more than expected, it may increase the potential risk of exposure to large amounts of risk.