Incident: Industrial Bank announced its 2024 quarterly report. Revenue increased 4.22% year on year, profit before provision increased 7.26% year on year, and net profit to mother decreased 3.10% year on year. The performance growth rate bottomed out and rebounded. Our comments are as follows:
Judging from performance drivers, Societe Generale Bank's performance is mainly supported by an increase in the scale of interest-bearing assets and a drop in cost pressure; narrowing net interest spreads and increasing pressure on provision plans are a drag.
Volume: Strong investment in public credit, weak retail credit growth
① On the asset side: At the end of the first quarter of 2024, Industrial Bank's total assets increased 4.38% year on year and maintained steady growth; total assets increased by 98.9 billion yuan in a single quarter, of which credit investment contributed 85.41%. Total credit increased 7.91% year-on-year during the same period, and actual loans increased by nearly 1,900 yuan in a single quarter, close to 40% of the annual investment plan. Judging from the credit investment structure, Industrial Bank's growth rate for public credit is high, and retail credit is relatively weak. At the end of the first quarter of this year, Industrial Bank's balance of public loans (excluding notes) increased 17.96% year-on-year, increasing by 2171 billion yuan in a single quarter. In the first quarter of 2024, Industrial Bank increased its investment in public credit in key areas and key branches. Loan balances for green finance, public inclusion, manufacturing and technology finance all grew by more than 7% compared to the beginning of the year, and 13 new loans (excluding notes) from 13 key branches accounted for 80.79%. The balance of retail loans fell 0.60% year over year at the end of the first quarter, mainly due to a slowdown in demand for personal housing and consumer credit.
② On the debt side: At the end of the first quarter of 2024, Industrial Bank's total debt increased 4.21% year-on-year, adding 73.5 billion yuan in a single quarter. Deposit balances increased 4.21% year-on-year during the same period, and decreased by $33.3 billion in a single quarter. Mainly because of the current trend of concentration and regularization of deposits in major banks, Industrial Bank puts capital reduction first and promotes the increase in settlement deposits and the pressure on high-cost deposits on the basis of maintaining a relatively stable deposit scale.
Price: The year-on-month decline in net interest spreads for the first quarter of 2024 was narrower than in the same period last year. Industrial Bank's net interest spread for the first quarter of 2024 was 1.87%, down 2 bps month-on-month and 10 bps year-on-year. The year-on-month declines were all narrower compared to the same period last year, mainly due to lower cost pressure. Industrial Bank's debt-side costs continued to decline in the first quarter of 2024. The bank's deposit interest rate was 2.12%, reaching the median level of stock banks, and the pressure drop ranked among the highest in the stock market. Looking at the full year, it is expected that there is room for further decline in deposit interest rates. In the first quarter of this year, Industrial Bank's return on assets fell 12 bps year over year due to stock mortgage interest rate adjustments and LPR repricing.
Investment returns have increased dramatically. In the first quarter of 2024, Societe Generale Bank's net non-interest income increased 2.69% year over year, with other non-interest income rising 16.16% year over year to form the main support. Mainly due to the decline in market interest rates in the first quarter of this year, Industrial Bank effectively grasped many volatile market opportunities and obtained good market returns.
Middle income declined year over year. In the first quarter of 2024, Societe Generale Bank's median income was affected by rate adjustments for bank cards and wealth management services, which decreased by 18.99% year-on-year. However, excluding one-time and uncomparable factors, the actual decline was about 9%, and the performance was superior to comparable peers. It is expected that with the adjustment of the middle income business strategy, the decline in Societe Generale Bank's net handling fee commission income will gradually narrow in the next quarter, and the annual growth rate will show a trend of low to high levels throughout the year.
Asset quality remains stable. At the end of the first quarter of this year, Industrial Bank's non-performing rate was 1.07%, flat month-on-month; due to macroeconomic structural transformation and real estate market adjustments, the attention rate increased 0.15 pct to 1.70% month-on-month; provision coverage rate was 245.51%, up 0.30 pct month-on-month, and risk offsetting capacity remained high. Looking at key areas, the current bad credit card generation rate of Industrial Bank has declined year on year, and local government financing business risks are relatively stable. The non-performing rate in the public real estate business increased slightly by 0.12 pct month-on-month, but the overall calculation is quite adequate.
Investment advice:
Looking ahead to the next quarter of 2024, Societe Generale Bank is expected to continue to reduce costs on the basis of ensuring a steady increase in asset quality and scale, and the decline in interest spreads is expected to gradually narrow. We believe that Societe Generale Bank's subsequent revenue and performance pressure will slow down. The company's revenue growth rate is expected to be 0.25% and profit growth rate is 1.04% in 2024. For a buy-A investment rating, the target price for 6 months is 22.40 yuan, which is equivalent to 0.6X PB in 2024.
Risk warning: The downward pressure on the economy has increased; asset quality has deteriorated beyond expectations.