Credit investment is speeding up, and credit costs are falling
Net profit, operating income, and PPOP for the first quarter were +10.0%, -5.7%, and -6.7%, respectively (-28.3%, -8.1%, and -11.1% year-on-year, respectively), and the Q1 performance indicators improved markedly. The company increased its dividend ratio, with a cash dividend ratio of 30.05% in 2023 (20.50% cash dividend ratio in 2022) and a dividend of 0.32 yuan per share, corresponding to a dividend rate of 4.31% (24/4/29). We forecast an EPS of 1.33/1.42/1.52 yuan for 2024-26, and a BVPS forecast value of 21.86 yuan for 24, corresponding to 0.34 times PB. Comparatively, the company's 24-year Wind consistently predicted an average PB of 0.43 times. The company's digital transformation enabled development and accelerated credit investment. We gave the 24-year target PB 0.43 times and a target price of 9.40 yuan, maintaining the “gain” rating.
Accelerate credit investment and optimize debt costs
The growth rates of total assets, loans, and deposits at the end of March were +2.2%, +4.2%, and +0.8% respectively (+3.5%, +2.4%, and +3.4%, respectively at the end of 23), and credit investment accelerated. The scale of notes contracted in the first quarter. The new loans were mainly public loans. The share of new retail/public/notes in Q1 was -9%/112%/-3% of the new loans, respectively. The pressure on retail loans was mainly affected by factors such as changes in the macro environment, real estate market adjustments, and stock maturity. At the end of March, the company had a loan balance of 1.74 trillion yuan and a deposit balance of 2.16 trillion yuan in the Yangtze River Delta region. The balance of deposits and loans continued to rank first in the joint-stock industry. Net interest spreads for 23 years were down 4 bps from 23H1. Among them, loan yield/deposit cost ratios were -12 bp/-3 bp, respectively, and deposit costs were optimized.
The growth rate of mid-income stabilized, and other non-intermittent fluctuations
Intermediate business revenue in the first quarter was -10.9% year-on-year, and -14.8% year-on-year. The Q1 growth rate was +3.9 pct compared to the end of 23, and the share of middle income in revenue increased by 0.5 pct to 14.6% compared to year 23. The fluctuation in revenue growth in mid-year 23 was mainly due to a significant year-on-year decline in bank card business, escrow, and other fiduciary businesses. Other non-interest income in 24Q1 was -0.1% YoY (+16.3% YoY). Other non-interest growth rates fluctuated. Among them, net income from changes in fair value declined significantly year-on-year. Net investment income remained +38% year-on-year in 24Q1, mainly due to the company formulating effective investment strategies in line with financial market trends, actively grasping investment trading opportunities, and actively increasing investment income. Investment income, mainly bonds, increased significantly.
Asset quality is stable, and credit costs are declining
The non-performing loan ratio and provision coverage ratio at the end of March were 1.45% and 173% respectively (1.48% and 174% at the end of March, respectively), and the non-performing rate at the end of March declined marginally from the end of 23. The attention rate at the end of March was 2.35%, +2bp from the end of 23, and there was a slight increase in the attention category indicators. The estimated annual failure rate in 24Q1 was 1.01% (1.54% in 23Q4), down 0.53 pcts from 23Q4. The 24Q1 annualized credit cost was 1.00%, -0.29pct year over year. The capital adequacy ratio and core Tier 1 capital adequacy ratio at the end of March were 12.35% and 8.83% respectively, compared with -0.32pct and -0.14pct month-on-month at the end of 23.
Risk warning: Economic recovery fell short of expectations, and the deterioration in asset quality exceeded expectations.