Investment advice: Taking into account financial reports and 2024 credit volume and price trend expectations, adjust the net profit growth forecast of the Chongqing Agricultural Commercial Bank for 2024-2026 to 3.23%/5.40%/7.45%, corresponding to EPS of 0.99/1.04/1.12 yuan. Maintain the target price of HK$4.45, corresponding to 0.38 times PB in 2024, and maintain an increase in holdings rating.

Revenue stabilized, and net profit growth declined to a certain extent. 2024Q1 revenue fell 2.9% year on year, and the decline narrowed. Other non-interest net income increased by 46.7%, and investment income increased significantly, supporting revenue performance; the cost-revenue ratio fell 5.81 percentage points year on year to 27.21%, driving profit before provision increased 5.44% year on year. Since the disposal and recovery of large amounts of non-performing assets was achieved in 2023Q1, accounting for 70.76% of the year, the 2023Q1 credit impairment loss was only 130 million yuan, which is a low base. The Chongqing Agricultural Commercial Bank adheres to a strict risk control mechanism, and the credit impairment loss accrued by 2024Q1 is 1,333 billion yuan, so the net profit growth rate decreased 10.8% year on year.

The pace of credit investment tends to be balanced, and is better than retail sales to the public. Total Q1 assets increased 4.1% year on year, loans increased 4.9% year on year, and the rate of table expansion is slowing down. Considering that 2023Q1 loan growth accounts for more than 70% of the annual increase, the 2024Q1 credit growth rate of the Chongqing Agricultural Commercial Bank may be related to regulatory requirements to balance the pace of credit investment. Structurally, loans to the public increased 7.0% year on year, and retail loans increased 1.4% year on year, continuing the trend of being stronger than retail. The Q1 net interest spread (estimate) for a single quarter was 1.50%, mainly dragged down by the interest-bearing asset side. The downward pressure on interest spreads is still there. Combined with a slowdown in credit growth, Q1 net interest income fell 9.2% year on year. In terms of deposits, Q1 deposits increased 5.9% year on year, and the share of deposits in debt increased to 69.8%. The debt base was further consolidated. Retail deposits increased 9.4% year on year, and the size of public deposits declined slightly.

Asset quality is generally stable. By the end of Q1, the non-performing loan balance of the Chongqing Agricultural Commercial Bank increased by 215 million yuan compared to the end of 2023; the non-performing loan ratio was 1.19%, the same as at the end of 2023; the provision coverage rate was 367.5%, up 0.84 percentage points from the end of 2023.

Risk warning: retail loan risk exposure exceeded expectations; Chongqing's regional economic growth fell short of expectations; regional credit competition intensified.