Core views:
The Bank of China released its 2024 quarterly report: 24Q1 revenue, PPOP, and net profit to mother increased by -3.0%, -4.9%, and -2.9%, respectively, and the growth rates changed by -9.4pct, -8.4pct, and -5.3pct, respectively, from '23. Judging from cumulative performance drivers, scale growth and effective tax rates are the main positive contributions. The narrowing of net interest spreads, the cost-revenue ratio, and provision estimates have caused a certain drag.
Highlights: (1) The scale of credit is growing steadily. The 24Q1 interest-bearing asset growth rate was 10.9% year-on-year. Among them, the loan size increased by 12.4%, slightly down from 23, or influenced by the smooth pace of credit loans. Structurally, the main incremental contribution came from the public. At the same time, the company continued to pressure down interbank assets, and the growth rate of total interest-bearing assets declined somewhat. On the debt side, 24Q1 deposits increased 10% year on year, down 3.4 pcts from '23. Deposit growth was under pressure. The company increased active debt expansion, and the total interest-bearing debt growth rate reached 11.2%. (2) The non-performing rate has declined, and the quality of assets is stable. The company's defect rate at the end of 24Q1 was 1.24%, down 3 bps from the end of the year. The bad indicators continued the steady, moderate and positive trend; it was estimated that the new bad generation rate in 24Q1 was 0.86%, an increase of 53 bps over the previous year. Considering that the attention rate and overdue rate also rebounded at the end of 23, pay attention to subsequent risk exposure. The provision coverage rate at the end of 24Q1 was 199.94%, down 5.35pct from the end of '23. (3) Increased capital adequacy ratio. Under the new capital regulations, the company's risk-weighted assets increased 0.09% year-on-year at the end of 24Q1 (23Q1 was RWA under the old capital management method), indicating that the new capital regulations contributed significantly to the company. The capital adequacy ratio at the end of 24Q1 was 18.52%, an increase of 0.78 pct over the end of 23.
Concern: (1) Interest spreads have narrowed. 24Q1 net interest spread was 1.44%, down 15 basis points from '23. According to our estimates, the yield on 24Q1 interest-bearing assets decreased by 15 bps compared to '23, and loan yields are expected to decline a lot due to factors such as repricing and declining interest rates; the 24Q1 estimated interest-bearing debt cost ratio increased by 2 bps compared to '23. The deposit cost ratio is still rigid under the combined influence of regular deposits and high levels of foreign currency deposits. Interest spreads are expected to remain under pressure throughout the year, but the heavy pricing pressure was absorbed intensively in Q1, and the decline in interest spreads is expected to narrow in subsequent quarters. (2) Negative increase in net revenue from handling fees. Net revenue from fees and commissions increased by -4.6% year-on-year in 24Q1. It is expected to be mainly affected by fee cuts in banking insurance channels. However, under pressure from agency business growth, the company increased its efforts to expand consulting, consulting, trusteeship, and bank cards, etc., which dragged down the overall performance less than that of peers.
Profit forecast and investment advice: The net profit growth rate for 24/25 is expected to be 0.59%/1.29%, EPS is 0.75/0.76 yuan/share, respectively. The current stock price is 6.1X/6.0X for 24/25 PE, respectively, and 0.56X/0.52X for 24/25 PB, respectively. Referring to industry valuations, keep the company's reasonable value of 5.30 yuan/share unchanged, corresponding to the company's 24-year PB reasonable valuation of 0.65X. According to the current AH premium ratio, H shares have a reasonable value of HK$4.21 per share, all maintaining a “buy” rating.
Risk warning: (1) economic growth has declined beyond expectations; (2) rising deposit costs have exceeded expectations; (3) international economic and financial risks have exceeded expectations; (4) policy regulation has exceeded expectations.