Zheshang Bank released its quarterly report for the year 24. 24Q1 revenue, PPOP, and net profit to mother increased by 16.6%, 18.1%, and 5.1% year-on-year respectively. The growth rates were +11.8PCT, +18.4PCT, and -5.2PCT, respectively. The 24Q1 revenue growth rate exceeded expectations.
Highlights: (1) Other non-interest rates doubled year over year, and Q1 revenue growth exceeded expectations. Other non-interest income of 24Q1 was 5.1 billion yuan, up 105% year over year, mainly contributing to an increase in investment income of 2.3 billion yuan (+136% year over year) to 3.9 billion yuan. (2) Increased core tier 1 capital adequacy ratio. The core Tier 1 capital adequacy ratio at the end of March was 8.60%, up 0.38 PCT from the end of the previous year. The main reason is that after the implementation of the new capital regulations, risk-weighted assets fell 780 million yuan month-on-month to 1.94 trillion yuan compared to the end of last year.
(3) The balance and liability structure was adjusted, and the net interest spread remained at a high level. The company disclosed that the 24Q1 net interest spread was 1.84%, down 17BP from 23A, and the pressure was mainly on the asset side. It is estimated that in 24Q1, the yield on interest-bearing assets and the cost ratio of interest-bearing debt fell by 9 BP and 1 BP, respectively, compared to 23Q4. In terms of asset structure, due to the slowdown in scale growth, the share of high-yield loans in interest-bearing assets increased by 1.7 PCT to 58.2%; in the debt-side structure, the share of low cost deposits and interbank liabilities (including NCDs) in interest-bearing liabilities increased by 0.5 PCT and 0.7 PCT to 65.1% and 26.9%, respectively.
Attention: (1) 24Q1 performance increased by 5%, which is 11 percentage points lower than the revenue growth rate, mainly due to an increase in impairment loss accruals. 24Q1 impairment losses increased 38% year over year, but considering that Q1 impairment losses accounted for a small share of annual accrual (for example, Q1 accounted for about 15%), the high increase in impairment losses may reflect a slightly lower annual net profit growth center. (2) Marginal fluctuations in asset quality. The non-performing loan ratio at the end of March was 1.44%, the same as at the end of December; the provision coverage rate at the end of March was 178%, down 5.1 PCT from the end of December; the estimated new generation rate of bad loans was 1.42%, up 56 BP from 23Q1 and 47 BP from 23A. (3) 24Q1 scale growth slowed to 14.5% (23A: 19.9%). On the one hand, financial investment realized a decrease of 48 billion yuan compared to the beginning of the year, including a decrease of 19.2 billion yuan in transactional financial assets, a decrease of 17.2 billion yuan in investment in other debt, and a decrease of 11.7 billion yuan in bond investment. On the other hand, Q1 loans invested 61 billion yuan, a year-on-year decrease of 13.7 billion yuan.
Profit forecast and investment advice: Fundamentals continue to pick up. Net profit growth rates for 24/25 are expected to be 8.8%/10.0%, EPS is 0.53/0.59 yuan/share, respectively. The current stock price is 5.54X/4.98X for 24/25 PE, respectively, and 0.48X/0.45X for 24/25 PB, respectively. Maintaining the company's reasonable value of 3.64 yuan/share, corresponding to a 24-year PB of about 0.6X. According to the current AH premium ratio, H shares have a reasonable value of HK$2.76 per share, all maintaining a “buy” rating.
Risk warning: (1) Macroeconomics declined more than expected, and asset quality deteriorated sharply. (2) Consumption recovery fell short of expectations, and deposit regularization was serious. (3) Market interest rates are rising, and transaction books are at a loss.