1Q24 results were slightly lower than our expectations
The company's 1Q24 operating income/profit before provision was -3.0%/-5.2%/-2.8% year-on-year, and the net interest income fell slightly below expectations, leading to a slightly lower performance than expected.
Development trends
The revenue and profit growth rate declined. 1Q24 The company's operating revenue/profit before provision fell 9.4ppt/net profit year-on-year compared to 2023. The pressure on revenue was mainly due to: 1) a 3.9% year-on-year decline in net interest income, a decrease of 5.5 ppt from 2023, mainly due to a decrease in interest spreads and a slight slowdown in asset growth; 2) net fee revenue fell 4.6% year on year, down 9.9ppt from 2023; 3) Other non-interest income increased 3.8% year on year, down 47.5ppt from 2023, mainly due to fairness Profit from changes in value and exchange gains and losses are dragged down.
The growth rate of credit investment has declined slightly. The company's 1Q24 loans/total assets increased by 12.4%/10.8% year-on-year respectively, a slight decrease of 1.3pp/1.5ppt from 2023, and still maintained a high growth rate. Looking ahead, we expect that inclusive small and micro, strategic emerging industries, manufacturing, science and innovation, and green will continue to be the focus of investment.
Interest spreads are showing some pressure. 1Q24's net interest spread was 1.44%, down 15 bps from 2023. The company's simulated net interest spread (balance at the beginning and end of the period) for a single quarter decreased by 5 bps compared to 4Q23. We think it was mainly due to the impact of loan repricing, last year's stock mortgage interest rate, and this year's LPR reduction; the single-quarter interest-paying debt cost ratio fell by 5 bps, mainly benefiting from the reduction in listed interest rates on early deposit accounts. On the other hand, we believe that the high base of interest spreads on foreign currency assets during the same period last year may also have dragged down interest spreads. Looking ahead, the delay in the pace of overseas interest rate cuts is expected to stabilize return on assets and interest spreads.
The capital adequacy ratio has increased, and the implementation of mid-term dividends will help increase the attractiveness of dividends. The 1Q24 company's core Tier 1 capital adequacy ratio was 12.02%, up 39 bps from 2023, the highest level in the past ten years, mainly due to the implementation of new capital regulations. The mid-term dividend bill announced by the company has been voted on by the board of directors. The total mid-year dividend accounts for no more than 30% of the net profit to the mother for half a year. The dividend ratio corresponding to the company's 2023 dividend was 5.2%/7.2%, respectively. The dividend value was even more significant after the implementation of the mid-term dividend.
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Profit forecasting and valuation
Net profit for 2024/2025 was reduced by -2.4%/-6.6% to 228.5 billion yuan/229.8 billion yuan due to revenue pressure. The current A share price corresponds to 2024/2025 0.6 times/0.5 times P/B, and H shares correspond to 2024/2025 0.4 times/0.3 times P/B. Keep the target price of A shares unchanged at 5.64 yuan, corresponding to 0.7 times the 2024 P/B and 0.6 times the 2025 P/B. There is 23.5% upside compared to the current stock price, maintaining the industry rating. Keeping the target price of H shares unchanged at HK$3.90, corresponding to 0.4 times the 2024 P/B and 0.4 times the 2025 P/B, there is 7.5% upside compared to the current share price, maintaining the industry rating.
risks
Domestic and foreign macroeconomic uncertainty; real estate and local financing platform risks.