Incidents:
On April 29, the Bank of Qingdao released its 2024 quarterly report. In 24Q1, it achieved operating income of 3.69 billion yuan, an increase of 19.3% over the previous year, and achieved net profit of 1.08 billion yuan, an increase of 18.7% over the previous year. The 24Q1 annualized weighted average return on net assets was 12.9%, an increase of 0.7 pct over the previous year.
Comment:
The revenue and profit growth rate increased, mainly driven by net other non-interest rates. The year-on-year growth rates of the company's 24Q1 revenue, profit before provision, and net profit to mother were 19.3%, 24.6%, and 18.7%, respectively, up 12.2, 17.4, and 3.6 pcts from 2023. Among them, net interest income and non-interest income grew at 7.7% and 47.7% year-on-year, with changes of -4.3 and 52.6 pct respectively from 2023; credit impairment loss/operating income and cost to revenue ratios were 37.7% and 25.7%, respectively, with changes of 1.5 and -2.9 pct respectively over the same period of the previous year. The year-on-year profit growth structure was split, with non-interest and scale expansion as the main contributors, driving performance growth rates of 45.4 and 27.9 pct, respectively. Judging from marginal changes, 1) The recovery in performance growth mainly benefits from: ① the contribution of non-interest income was 50 pcts wider than in 2023, shifting from negative contributions to positive contributions, mainly driven by profit and loss from changes in fair value; ② the contribution of scale expansion broadened slightly. 2) The main performance drag items include:
Contributions to provisions and interest spreads declined by 37 and 16 pcts, respectively, compared to 2023, and both changed from positive contributions to negative contributions.
The rate of table expansion has slowed, and credit growth has remained high. In 24Q1, the company added 11.1 billion dollars in interest-bearing assets in a single quarter, a year-on-year decrease of 141 billion dollars. The year-on-year balance growth rate decreased by 3.5 pct to 10.7% compared to the beginning of the year.
1) Looking at the investment structure of interest-bearing assets, the amount of new loans, financial investments, and interbank assets in 1Q was 17 billion, -4 billion, and -2.4 billion, respectively. Among them, loans increased by 2.8 billion yuan year-on-year, while financial investment and interbank assets decreased by 8.2 billion and 8.5 billion dollars, respectively; loan balances grew 12% year over year, up 0.4 pct from the beginning of the year.
2) Looking at the credit investment structure, increase support for private enterprises, small and micro enterprises. 24Q1 corporate loans (including discounts) and retail loans increased by $171 billion and $100 million respectively, with year-on-year increases of 2.3 billion and 500 million, respectively. Among them, private enterprise loans and inclusive small and micro loans increased by 6.12 billion yuan and 4.02 billion yuan respectively, with year-on-year increases of 5.6 billion and 2.9 billion dollars respectively. The 24Q1 corporate loan boom continued, and support for the inclusive sector was increased; the retail side is in a low season, residents' willingness to increase leverage is relatively weak, and the early repayment rate of mortgage loans may still be relatively high.
Incremental deposit-to-loan ratios are under pressure, and NCD issuance is increasing. 24Q1 added 8.1 billion dollars of interest-paying debt, a year-on-year decrease of 14.5 billion dollars, and the balance growth rate was 11.9% year-on-year, down 3.6 pct from the beginning of the year. Judging from the structure of the new interest-paying debt, the size of new deposits and market liabilities in 1Q was 4 billion and 4.1 billion, respectively, with a decrease of 12.3 billion and 2.1 billion dollars, respectively.
Among them, NCD's net financing was 2.58 billion yuan, an increase of 2.72 billion over the previous year; the 1Q incremental deposit-to-loan ratio was 419%, an increase of 332 pcts over the same period last year.
The 24Q1 net interest spread fell 6 bps to 1.77% from 2023, mainly dragged down by the asset side, and the cost of debt improved. In 24Q1, the disclosed value of the company's net interest spread was 1.77%, 6 bps narrower than in 2023; when calculating the return on interest-bearing assets, the interest-paying debt cost ratios were 3.99% and 2.24%, respectively, down 11 bps and 5 bps from 2023, respectively. From the asset side, asset-side pricing is still facing downward pressure as stock loans continue to be repriced on a rolling basis and the impact of lower interest rates on stock mortgages continues. At the end of 2023, corporate mortgage loans accounted for 15.6% of total loans. Based on this, it is calculated that the reduction in stock mortgage interest rates will affect the yield on interest-bearing assets by about 5 bps; from the debt side, it may mainly benefit from:
First, the company continues to reduce pressure on high-cost liabilities, and second, dividends from lower interest rates on early deposit listings will be released centrally this year.
Profit and loss from changes in fair value supported the strengthening of non-interest income, and the share of non-interest income increased by 7 pct to 36% compared to the same period last year. The company's 24Q1 non-interest revenue increased 47.7% year-on-year to 1.32 billion, an increase of 52.6 pcts over 2023. Among them, net processing fees and commission revenue increased 11.8% year on year to 530 million, up 2 pcts from 2023; net other non-interest income increased 88% year over year to 790 million, up 104 pcts from 2023. Interest rates in the 24Q1 bond market declined markedly, leading to a relatively good increase in bond valuation income. 24Q1 investment income and fair value change profit and loss reached 360 million and 450 million respectively. Among them, profit and loss from changes in fair value increased by 350 million over the same period last year, constituting the main driving force behind the strengthening of net other non-interest rates.
The bad + attention rate fell 6 bps from quarter to quarter to 1.66%, and risk compensation capacity remained steady. At the end of 24Q1, the balance of non-performing loans and concerned loans was 3.73 billion and 1.54 billion yuan respectively, adding 190 million and -90 million respectively in a single quarter; the non-performing loan ratio and concern rate were 1.18% and 0.49% respectively, changing by 0 bps and -6 bps respectively from the beginning of the year. The total ratio of non-performing loans plus concern loans was 1.66%, down 6 bps from the beginning of the year. In terms of provision, 1Q accrued credit impairment losses of 1.39 billion yuan in a single quarter, an increase of 270 million; credit impairment loss/average total assets (annualized) was 0.9%, up 7 bps year on year; provision balance was 8.67 billion, up 670 million from the beginning of the year; provision coverage rate was 232.4%, up 6.4 pct from the beginning of the year, and the loan ratio was 2.73%, up 6 bps from the beginning of the year.
The growth rate of RWA has slowed, and capital adequacy ratios at all levels have increased. At the end of 24Q1, the company's core Tier 1, Tier 1, and total capital adequacy ratios were 8.98%/10.68%/13.46%, respectively, up 57/58/66 bps from the beginning of the year; RWA grew 9.6% year on year, down 5.8 pct from the beginning of the year.
Profit forecasting, valuation and ratings. 2024 is the second year of the Bank of Qingdao's new three-year (2023-2025) strategic plan. Subsequent operations will focus on the four strategic themes of “restructuring, strong customer base, excellent collaboration, and capacity improvement”, and make every effort to build a value-leading bank with “leading quality and efficiency, distinctive features, and flexible mechanisms”. Bank of Qingdao achieved a “good start” in credit investment in 2024. The asset structure continued to be optimized, and both revenue and profit maintained relatively rapid growth, and achieved a good start. At the same time, the Bank of Qingdao was among the first commercial banks in the city to establish financial management subsidiaries. The asset scale managed by Qingyin Wealth Management had already exceeded 200 billion dollars by the end of last year, and the wealth management business has strong potential for improvement. Maintaining the company's 2024-2026 EPS forecast of 0.68/0.74/0.79 yuan, the current stock price is 0.57/0.52/0.48 times the corresponding PB valuation, respectively, maintaining the “buy” rating.
Risk warning: The downward pressure on the macroeconomic economy is increasing, and credit tolerance falls short of expectations.