Matters:
ICBC released its 2024 quarterly report. In the first quarter, it achieved operating income of 219.8 billion yuan, a negative increase of 3.4% over the previous year, and realized net profit to mother of 87.7 billion yuan, a negative increase of 2.8% over the previous year. The annualized weighted average ROE was 10.06%.
By the end of the first quarter of 2024, the company's total assets reached 47.6 trillion yuan, up 6.49% from the beginning of the year, loans increased 4.92% from the beginning of the year, and deposits increased 4.52% from the beginning of the year.
Ping An's point of view:
Revenue pressure dragged down profits, and cost control remained high. ICBC's net profit for the 1st quarter of 2024 fell 2.8% year on year, down from the 1% growth rate for the full year of 23. The main drag factor still came from the revenue side. ICBC's revenue fell 3.4% year on year in the 1st quarter of '24. Among them, net interest income and handling fee revenue increased negatively by 4.2%/2.8% year on year, respectively, affected by the continued decline in overall loan interest rates in the industry and the continued promotion of fee reduction and concession policies, respectively. The relatively positive performance on the revenue side in the first quarter came from other non-interest sectors. Benefiting from the decline in bond interest rates, ICBC's other non-interest income in the first quarter increased 2.2% year-on-year, making a positive contribution to revenue. Against the backdrop of weak revenue side growth, ICBC maintained a high level of control on the cost side. Business management expenses increased by only 0.6% year on year. At the same time, impairment calculation efforts have slowed down, down 7.6% year on year, partly relieving downward pressure on profits.
Interest spreads have stabilized marginally, and asset debt expansion has remained steady. ICBC's net interest spread for the first quarter was 1.48%, narrowing by 29BP year-on-year, but based on the balance at the beginning and end of the period, we estimate that ICBC's 24Q1 annualized net interest spread increased by 3BP to 1.44% month-on-month, showing a steady improvement trend. We expect that this is mainly due to the stabilization of interest rates on new loans issued on the asset-side and the effects of continued reduction in debt-side deposit interest rates. However, considering that the overall interest rate environment is still on a downward trend, the recovery in effective demand from enterprises and residents is not obvious, or will still put some downward pressure on interest spreads. Looking at the capital-bearing structure, ICBC's capital-side expansion was steady in the first quarter. The total asset size increased by 6.49% compared to the beginning of the year. Among them, loans increased 4.92% from the beginning of the year, debt-side deposits increased 4.52% from the beginning of the year, and the structure remained balanced.
The defect rate remained flat month-on-month, and the level of provision increased slightly. ICBC's defect rate for the first quarter of 2024 was 1.36%, the same as the fourth quarter, down 2BP from the previous year, and remained stable overall. In terms of provision, ICBC's provision coverage rate and loan ratio increased by 2 pct/4 bp to 216 pct/ 2.94% month-on-month, respectively, at the end of the first quarter, and provision levels remained stable.
The capital adequacy ratio increased month-on-month, and attention is being paid to the detailed medium-term dividend plan. ICBC's core Tier 1 capital adequacy ratio increased by 6BP to 13.78% in the first quarter of 2024 compared to the beginning of the year. The increase in capital adequacy ratio mainly benefited from the implementation of commercial banks' capital management measures, and capital was effectively saved. It is worth noting that ICBC's board of directors decided to pass the mid-term dividend plan today, clearly considering the current performance situation based on the reviewed financial report for the first half of 2024, and implement the 2024 interim dividend payment under the condition that the company has profits to distribute in the first half of 2024. Regarding the dividend ratio, the bill mentions that the total cash dividend in 2024 accounts for no more than 30% of the Group's current profit attributable to the Bank's shareholders after tax. The details need to be further refined and clarified. Considering ICBC's current capital adequacy ratio situation, it is expected that there is still room for future dividend rate increases.
Investment advice: Steady management, outstanding high dividend attributes. As the largest commercial bank in China, ICBC's solid customer base, outstanding cost advantages, stable asset quality, and continuous improvement of comprehensive management capabilities are the foundation for crossing the cycle. With the gradual deepening of its “GBC+” strategy, the increase in internal capital circulation and customer stickiness is expected to provide it with stable business needs. Currently, in the context of risk-free interest rates continuing to decline, ICBC is a high dividend product that can stabilize dividends. The dividend premium ratio of the dividend rate is at an all-time high compared to the risk-free interest rate, and the dividend allocation value is worth paying attention to. We maintain the company's 24-26 profit forecast. The company's 24-26 EPS is expected to be 1.03/1.07/1.12 yuan respectively, corresponding to a year-on-year growth rate of 0.5%/4.0%/5.3%. Currently, the company's A share price corresponding to 24-26 PB is 0.52x/0.49x/0.46x, respectively, maintaining the “recommended” rating.
Risk warning: 1) The economic downturn has caused the pressure on the asset quality of the industry to rise more than expected. 2) The decline in interest rates caused industry interest spreads to narrow beyond expectations. 3) Increased cash flow pressure on housing enterprises has triggered a rise in credit risk.