1Q24 results are in line with our expectations

Everbright Bank announced 1Q24 results. The company's revenue for the first quarter was -9.6% year-on-year; net profit to mother was +0.4% year-on-year. The results were in line with our expectations.

Development trends

Assets have grown moderately, and debt costs have stabilized. The company's 1Q24 net interest income was -11.7% YoY. In terms of size, 1Q24's total assets/loans/deposits were +1.8%/+3.1%/+0.7%, respectively. On the pricing side, we estimate that the company's average net interest spread at the end of the early 1Q24 period was 1.45%, -11bp month-on-month. Among them, the company's average yield on interest-bearing assets at the end of the 1Q24 period was -11bp to 3.65% month-on-month; the average interest rate on interest-paying debt remained flat at 2.38% month-on-month. We judge that the decline in corporate interest spreads is mainly affected by the decline in yield on newly invested loans; on the debt side, the decline in deposit interest rates has gradually eased the upward pressure on debt costs.

The gold market business supports non-interest income. The company's 1Q24 non-interest revenue was -4.3% YoY. Looking at the breakdown, 1Q24's net handling fee revenue fell 24.8% year on year, mainly due to poor capital market performance and consumption recovery falling short of expectations. We believe that under the guidance of the three major Polaris indicators of FPA, AUM, and GMV, the company's operating capacity for public customers and the operating base for retail customers continued to improve, which is expected to support future revenue business flexibility. The company's other non-interest income in 1Q24 was +39.3%, of which profit and loss from changes in fair value were +111.5% year-on-year in 1Q24. The gold market business provided strong support for non-interest income in the context of a stronger bond market.

The quality of assets is stable, and the ability to offset risks has improved. The 1Q24 company's non-performing loan ratio was 1.25%, which was flat month-on-month; we estimate that the company's net bad loan generation rate of 1Q24 was 49/100bps lower year-over-year/month-on-month to 0.76%. In response, the company's 1Q24 credit costs fell 36/71 bps year over month to 1.05%, and the pressure on impairment losses eased somewhat. While steady asset quality indicators leave some room for profit release, the company's ability to offset risks is steadily improving. The 1Q24 corporate loan provision coverage ratio was +3.8pct to 185.1% month-on-month.

Profit forecasting and valuation

We keep our profit forecast unchanged. The Company's A shares are currently trading at 0.4x/0.4x 2024E/2025EP/B. We maintain the Company's A share target price of 4.10 yuan unchanged, corresponding to 0.5x/0.5x 2024E/2025EP/B and 31.0% upward space; H shares are currently trading at 0.3x/0.3x 2024E/2025E P/B, and we maintain the target price of HK$3.20 for the company's H shares, corresponding to 0.4x/0.3x 2024E/2025EP/B and 34.5% room for growth. Maintain an outperforming industry rating.

risks

The macroeconomic recovery fell short of expectations, and the exposure of corporate credit/financial investment risks exceeded expectations.