CCB released its report for the first quarter of 2024. The 24Q1 revenue, PPOP, and net profit growth rates were -3.0%, -3.7%, and -2.2%, respectively, with changes of -1.18pct, -1.45pct, and -4.61pct, respectively, compared with 2013. In terms of performance drivers, growth in scale, other income and expenditure, and provision accruals are the main positive contributions. The narrowing of net interest spreads, net handling fee revenue, and cost-to-revenue ratios are the main negative contributions.
Highlights: (1) Steady growth in scale and a smooth pace of credit. On the asset side, 24Q1 loans increased 11.1% year on year, adding 116.7 billion yuan in loans, a year-on-year decrease of 16 billion yuan. The smooth pace of credit loans is expected to guide banks, and the year-on-year increase in credit is expected to gradually increase in subsequent quarters. Structurally, 92% of the new loans went to the public, and loans to the public increased 9.5% year over year, focusing on key areas such as strategic emerging industries, inclusive finance, and green finance. At the same time, the pressure on notes in the table dropped to release credit lines. Retail loans increased 4.2% year on year, adding 12.4 billion yuan in retail loans, an increase of 2.4 billion yuan year on year. On the debt side, 24Q1 deposits increased 8.4% year on year. The growth rate fell 4.98 pcts from the end of 23, adding 172.6 billion yuan in deposits, a year-on-year decrease of 73.6 billion yuan, and the share of current deposits decreased by 0.68 pct to 43.5% month-on-month. (2) Stable asset quality. The defect rate at the end of 24Q1 was 1.36%, down 1 bp from the end of 23, and the defect rate index improved. The estimated 24Q1 defect generation rate was 0.57%, and the year-on-year increase was 5 bps. Basically, it remained stable, and new defects were manageable. The pull-out coverage rate at the end of 24Q1 was 238.17%, down 1.68pct from the end of '23, and there were plenty of provisions for safety pads. (3) Increase in core tier 1 capital adequacy ratio. At the end of 24Q1, the company's core Tier 1 capital adequacy ratio was 14.11%, up 0.96pct from the end of 23. It is expected to mainly benefit from the contribution of the new capital regulations. The increase in core tier 1 capital adequacy ratio will help improve the sustainability of the company's dividends.
Concern: (1) Interest spreads continue to narrow. The company's 24Q1 net interest spread was 1.57%, down 13 bps from the end of '23, mainly affected by LPR cuts and low market interest rates. Looking at both financial and negative sides, we estimate that the yield on 24Q1 interest-bearing assets fell 5 bps from 23Q4. We expect the company's pressure to reduce the share of interest-bearing assets stored in central banks and the share of interbank assets, increase the share of loans, and hedge the decline in return on assets through restructuring; we estimate that the 24Q1 interest-bearing debt cost ratio decreased by 3 bps month-on-month compared to 23Q4, improving debt costs, and the effects of the previous round of deposit listing rate cuts are expected to continue to be released. (2) Negative growth in revenue. Net revenue from processing fees and commissions increased -8.7% year on year in 24Q1. Bank card fee revenue maintained steady growth, and agency business revenue declined year on year, mainly affected by the general decline in rates in insurance, fund and other industries and the high base for the same period last year.
Profit forecast and investment advice: The net profit growth rate for 24/25 is expected to be 0.49%/1.53%, EPS is 1.32/1.34 yuan/share, BVPS is 12.7/13.7 yuan/share, the latest closing price of A-shares is 0.6X/0.5X for 24/25 PB, and 5.4X/5.3X for 24/25 PE. The reasonable value of A shares remained unchanged at 8.91 yuan/share, corresponding to the 24-year PB valuation of about 0.7X. According to the current AH premium ratio, the reasonable value of H shares was 6.39 HKD/share, all of which were given a “buy” rating.
Risk warning: (1) The macroeconomy declined beyond expectations, and asset quality deteriorated sharply. (2) The recovery in consumer consumption fell short of expectations, affecting retail loan investment. (3) Deposit cost control falls short of expectations.