The Agricultural Bank released its 2024 quarterly report. The 24Q1 company's revenue, PPOP, and net profit to mother increased by -1.76%, -3.2%, and -1.6% year-on-year respectively. The growth rates changed by -1.8% pct, -1.4pct, and -5.5pct respectively from the full-year growth rate in '23. Judging from performance drivers, scale growth and effective tax rates were the main positive contributions, and factors such as narrowing net interest spreads and falling handling fees contributed to a certain extent.
Highlights: (1) The defect rate continues to decline. The company's defect rate at the end of 24Q1 was 1.32%, down 1BP from the end of 23, and the defect rate index continued to improve. At the end of 24Q1, the company's provision coverage rate was 303.22%, which was basically stable from month to month, and risk provision continued to remain at an excellent level. (2) Interest spreads in a single quarter stabilized month-on-month. We estimate that the 24Q1 company's net interest spread was 1.42%, the same as the 23Q4 net interest spread for the single quarter. It is expected to mainly benefit from improvements in the asset structure (month-on-month increase in the share of loans, and an expected decrease in the share of notes in loans) and the reduction in deposit interest rates. (3) Increased core tier 1 capital adequacy ratio.
At the end of 24Q1, the company's core Tier 1 capital adequacy ratio was 11.37%, an increase of 0.65pct over 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) The growth rate of processing fees is clearly negative. In 24Q1, the company's net revenue from handling fees and commissions fell 10.8% year on year, causing a drag on revenue growth. It is expected to be related to the delayed impact of policies such as insurance and public offering fee cuts last year. As the high base effect subsides, subsequent fee declines are expected to narrow. (2) Negative profit growth rate. The company's Q1 revenue, PPOP, and profit all grew negatively, and the market may be concerned about whether the annual profit growth rate and dividend amount can achieve positive growth. However, we believe that the gradual transformation of bank concession entities from the revenue side to the profit side may help reduce the pressure to continue making concessions in the future, and profit growth may gradually pick up as the base declines in the last three quarters of last year.
Profit forecast and investment advice: Although the company's Q1 revenue is under pressure and profits are declining, the quality of the company's assets is steady, provisions are adequate, interest spreads are showing signs of stabilizing, the downward pressure on handling fees is expected to decrease quarterly, and the annual results are expected to achieve positive growth. Net profit growth rates for 24/25 are expected to be 1.6%/2.0%, EPS 0.78/0.79 yuan/share, respectively. The current stock price is 5.7X/5.6X for 23/24 PE, respectively, and 0.59X/0.55X for 23/24 PB, respectively. The company was given a reasonable 24-year PB valuation of 0.7X, corresponding to a reasonable value of 5.16 yuan/share. According to the current AH premium ratio, H shares had a reasonable value of HK$4.18 per share, all maintaining a “buy” rating.
Risk warning: (1) economic growth has declined beyond expectations; (2) rising deposit costs have exceeded expectations; (3) international economic and financial risks have exceeded expectations; (4) policy regulation has exceeded expectations.