Key points of investment
The Bank of China's 24Q1 profit was under slight pressure; looking ahead to the full year, profit growth is expected to return to 0%.
Overview of the data
The Bank of China's net profit to mother fell 2.9% year on year in 24Q1; revenue fell 3.0% year on year. The Bank of China's non-performing rate fell 3bp to 1.24% month-on-month at the end of 24q1; provision coverage rose 8pc to 200% from the end of 23Q4.
Profits are under slight pressure
The Bank of China's net profit to mother fell 2.9% year on year in 24Q1; revenue fell 3.0% year on year. In terms of driving factors, it is mainly the increase in interest spreads, non-interest, and impairment. (1) Interest spread: 24Q1 estimates that the single-quarter interest spread (early and end of the period, same below) decreased by 5 bps to 1.42% month-on-month compared to 23Q4. (2) Other non-interest: Other non-interest rate increased 3.8% year on year in 24Q1, and the growth rate decreased by 47.5 pc from month to month. Judging mainly that the Bank of China had a large allocation of foreign currency bonds. Affected by the rise in overseas interest rates in Q1, some bond investments experienced losses. (3) Impairment: 24Q1 impairment increased 5.7% year on year, and the growth rate rebounded 3.2 pc month-on-month, dragging down profits.
Looking ahead to the whole year, due to the narrowing of interest spreads, the Bank of China's revenue is still under negative upward pressure, and profit growth is expected to recover.
Interest spreads fell month-on-month
The 24Q1 interest spread (at the beginning and end of the period, same below) was 1.42%, down 5 bps from 23Q4. (1) Asset side: The yield on the asset side in the 24Q1 quarter was 3.42%, down 10 bps from month to month, mainly due to declining interest rates in domestic loans and financial markets. (2) Debt side: The debt-side cost ratio for the 24Q1 quarter was 2.20%, down 5 bps from month to month, mainly due to the release of deposit interest rate reduction dividends, and deposit costs improved.
Looking ahead, it is expected that there will still be downward pressure on the Bank of China's interest rate spreads in the future.
Asset quality improvement
On the negative side, the Bank of China's non-performing ratio fell 3 bps month-on-month to 1.24% at the end of 24Q1, and asset quality was stable, moderate and positive.
In terms of provision, provision coverage improved by 8pc to 200% month-on-month at the end of 24Q1, and the level of provision increased.
Profit forecasting and valuation
The Bank of China's net profit is expected to increase by 0.33%/5.10%/6.95% year-on-year in 2024-2026, corresponding to BPS8.11/8.65/9.24 yuan. The current price corresponds to 0.57/0.53/0.50 times PB. Maintain the target price of 5.27 yuan, corresponding to the target valuation of 2024 PB 0.65x, current price space 15%, and maintain the “buy” rating.
Risk warning: The macroeconomic economy has stalled, and the bad situation has been greatly exposed.