Key points of investment
In 24Q1, Zheshang Bank's revenue surpassed expectations by 16.6%. Xintai Life took shares and increased its holdings, focusing on recommended targets.
Performance Overview
Zheshang Bank's 24Q1 revenue increased 16.6% year over year, up 12.4pc from 23A; net profit to mother increased 5.1% year over year, and the growth rate decreased 5.4 pc from 23A month on month. The defect rate at the end of 24Q1 remained flat at 1.44% compared to the end of 23Q4, and the provision coverage rate decreased by 5pc to 178% compared to the end of 23Q4.
Revenue surpassed expectations
Zheshang Bank's 24Q1 revenue and net profit to mother increased 16.6% and 5.1%, respectively. The growth rate increased by 12.4 pc and decreased by 5.4 pc from 23A, respectively. The revenue growth rate was significantly better than market expectations, due to increased non-interest contributions.
Looking ahead to the whole year, Zheshang Bank's revenue growth rate may decline, mainly considering the weakening of other non-interest contributions to revenue.
Increased impairment accrual
24Q1 impairment losses increased 38% year over year, judging that non-credit impairment increased in 24Q1. Main considerations: The provision coverage rate at the end of 24Q1 decreased by 5pc to 178% compared to the end of 23Q4. The defect rate at the end of 24Q1 was flat at 1.44% compared to the end of 23Q4. According to this estimate, the loan impairment provision at the end of 24Q1 was 44.95 billion, an increase of only 40 million yuan compared to the end of 23Q4, while the 24Q1 impairment accrued to 5.38 billion yuan. We infer that most of the impairment accrued over 24Q1 was used for non-credit assets.
Looking ahead, the scale of non-credit impairment in 2024 may be comparable to 2023. According to the requirements of the new capital regulations, the provision ratio should reach 75% by the end of 2024, and non-credit impairment of 12 billion dollars will need to be added, compared to 11.6 billion dollars in non-credit impairment in 2023.
Interest spreads are still under pressure
It is estimated that 24Q1 single-quarter interest spreads fell 4 bps to 1.68% month-on-month compared to 23Q4. Interest spreads continued to narrow, mainly being dragged down by the asset side. Specifically: ① The return on assets fell 9 bps to 4.10% month-on-month in 24Q1. Judging that it was mainly affected by the decline in loan yields and the increase in the scale of bond investment. ② The 24Q1 debt cost ratio fell 1bp to 2.36% month-on-month, continuing the improvement trend since 23Q4. It is mainly due to the continued release of benefits from lower interest rates on deposits.
Looking ahead, there is downward pressure on Zheshang Bank's interest spreads. Main considerations: ① Credit demand is weak, and return on assets is under downward pressure. ② In order to save capital, it is expected that the scale of bond investment will continue to increase throughout the year, dragging down return on assets.
Insurance capital is actively participating in shares
(1) Xintai Life invests in shares and actively increases its holdings, and is optimistic about the investment value of Zheshang Bank. According to the 24Q1 financial report, Xintai Life has become the sixth largest tradable shareholder of Zheshang Bank, with a shareholding ratio of 2.81%. According to the Hong Kong Stock Exchange, on April 11, Xintai Life increased its Hong Kong stock holdings of Zheshang Bank by 374 million shares, accounting for 6.31% and 1.36% of Hong Kong stocks and total shares, respectively. According to this estimate, Xintai Life's shareholding ratio in Zheshang Bank is about 4.17%. Xintai Life is the first corporate life insurance company in Zhejiang. At the end of 2023, the total assets exceeded 230 billion yuan, and its strength is strong. Xintai Life took a stake in Zheshang Bank and actively increased its holdings, reflecting its high recognition of Zheshang Bank's investment value.
(2) Deepening strategic collaboration with China Taiping, the two sides have broad prospects for business cooperation. In May 2023, Taiping Life took a stake in Zheshang Bank, with a shareholding ratio of 3.36% at the end of 24Q1. In September 2023, Zheshang Bank and China Taiping signed a comprehensive strategic cooperation agreement. In March 2024, China Taiping proposed to establish a comprehensive business relationship with Zheshang Bank in terms of equity investment and property insurance. The two sides complement each other's licensing resources and have broad prospects for cooperation.
Profit forecasting and valuation
Net profit due to mother is expected to increase 6.76%/7.03%/11.06% year-on-year in 2024-2026, corresponding to BPS 6.27/6.68/7.15 yuan. As of the close of April 30, 2024, the current price was 3.00 yuan/share, corresponding to 0.48/0.45/0.42 times the 2024-2026 PB. The target price is 3.76 yuan/share, corresponding to 0.60 times the 2024 PB, and the current price space is 25%, maintaining the “buy” rating.
Risk warning: The macroeconomic economy has stalled, and the bad situation has been greatly exposed.