1Q24 results are in line with our expectations

Minsheng Bank announced 1Q24 results. The company's revenue for the first quarter decreased by 6.8% year on year, and net profit to mother decreased by 5.6% year on year. The results were in line with our expectations.

Development trends

Asset quality burdens have continued to be cleared, and the net generation rate of non-performing loans has improved. We believe that since 2020, Minsheng Bank has achieved a strong risk management base and improved asset quality by optimizing risk management mechanisms, adjusting the pace and structure of credit investment, and strengthening loan concentration management and investment and research capabilities. By the end of 1Q24, the company's non-performing loan ratio was 1.44%, down 4 bps from the beginning of the year; the share of concerned loans was 2.63%, down 7 bps from the beginning of the year, and the burden of survival continued to drop. On the negative side of new generation, benefiting from the company's prudent risk appetite in recent years, we estimated that the net generation rate of non-performing loans in 1Q24 was 0.76%, which is 30 bps lower than the 1.06% level in 2023. On the premise of maintaining a stable provision coverage rate (149.4% at the end of 1Q24), the company's 1Q24 credit costs decreased by 18 bps to 0.70% year over year and 64 bps month over month.

The comprehensive management capabilities of customers continue to improve, providing room for medium- to long-term revenue growth. Guided by the company's strategic positioning of “private enterprise banks, agile and open banks, and banks with dedicated service”, we believe that the company's ability to differentiate among strategic customers, small, medium and micro customers, and retail customers is gradually improving.

At the level of public business: The “bullnose” role of strategic customers continues to be played, and the traction of the customer base continues to be released. Currently, it has driven the number of public finance customers in the supply chain to 24,000, an increase of 4,857 compared to the beginning of the year, and 47,000 payroll retail customers during the same period. In terms of the small, medium and micro customer base, relying on the five major drivers of “characteristic model customer acquisition, settlement first customer pickup, small and medium credit customer service,” the small and medium customer base was gradually consolidated. The growth rate of SME credit in the first quarter compared to the beginning of the year reached 6.5%, higher than the 0.7%/2.6% growth rate of the bank's total assets and loans. At the same time, the company's digital capabilities continue to empower customer base operations and enhance potential returns by solving the problem of information asymmetry. The interest rate for 1Q24's new inclusive small and micro loans is 4.67%.

At the retail business level: The company continues to enhance high-quality customer acquisition capabilities, including strengthening integrated coordination mechanisms, improving ecological operation, and integrating consumption scenarios and banking services; at the same time, improving specialized management at the customer segment level, the 1,000 yuan level compliance rate for new customers was 32.84%, an increase of 0.94 pct over the previous year. By the end of 1Q24, the number of the company's retail customers was 130 million, up 1.2% from the beginning of the year; retail AUM reached 2.84 trillion yuan, up 3.6% from the beginning of the year. The ratio of retail business revenue to total revenue in the first quarter increased 0.55pct year-on-year to 46.84%.

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Profit forecasting and valuation

Maintain profit forecasts, valuations, and outperform industry ratings. Currently A shares are trading at 0.3x/0.3x2024E/2025E P/B, and H shares are trading at 0.2x/0.2x 2024E/2025E P/B. Maintain A and H target prices of $5.05 (corresponding to 0.4x/0.4x 2024E/2025E P/B and 26.9% upside) and HK$3.73 (corresponding to 0.3x/0.3x 2024E/2025E P/B and 29.1% upside).

risks

Real estate and credit card risk management pressure was higher than expected, and macroeconomic recovery fell short of expectations.