Key points of investment
ICBC's 24Q1 interest spread improved beyond expectations; profit increased slightly, and the annual profit growth rate is expected to return to 0%.
Performance Overview
ICBC's 24Q1 revenue fell 3.4% year on year, and the decline was 0.3 pc narrower than 23A; 24Q1 net profit to mother fell 2.8% year on year. The defect rate at the end of 24Q1 was the same as 1.36% at the end of 23Q4; the provision coverage rate at the end of 24Q1 increased by 2pc to 216% compared to the end of 23Q4.
Profit slightly negative
ICBC's 24Q1 revenue fell 3.4% year on year, and the decline was 0.3 pc narrower than 23A; 24Q1 net profit to mother fell 2.8% year on year. (1) The decline in 24Q1 revenue narrowed slightly compared to 23A, thanks to a month-on-month recovery in interest spreads.
The 24Q1 estimated interest spread (early and end of the period, same below) rebounded 2 bps to 1.44% from 23Q4 compared to 23Q4. (2) Negative profit growth in 24Q1 was due to weakening impairment contributions. The 24Q1 impairment decreased by 7.6% year-on-year, and the decline was 9.8pc narrower than 23A.
Looking ahead, due to declining interest spreads, ICBC's revenue is under negative upward pressure, and profit growth is expected to rectify.
Interest spreads rebounded month-on-month
24Q1 calculated an interest spread of 1.44%, up 2 bps from 23Q4. Interest spreads rebounded month-on-month, mainly due to a recovery in return on assets. ① Asset side: The return on assets in 24Q1 was 3.24% in a single quarter, up 3 bps from month to month. ② Debt side:
The debt cost ratio for the 24Q1 quarter was 2.00%, which was the same as in 23Q4 compared to the previous quarter.
Looking ahead, ICBC's subsequent interest spreads are still under pressure to narrow. Main considerations: Stock loans have been repriced, interest rates on new loans have declined with the industry, and the downward pressure on return on assets is still strong; the trend of deposit periodization continues, and debt costs are relatively rigid.
Bad remains stable
In terms of defects, ICBC's defect rate remained flat at 1.36% month-on-month at the end of 24Q1, and asset quality remained stable.
In terms of provision, ICBC's provision coverage rate improved by 2pc to 216% month-on-month at the end of 24Q1, and the level of provision increased slightly.
Profit forecasting and valuation
ICBC's net profit is expected to increase by 0.21%/1.29%/2.01% year-on-year in 2024-2026, corresponding to BPS 10.27/10.96/11.66 yuan. The target price is 6.67 yuan/share, corresponding to the 2024 PB of 0.65 times. As of the close of April 30, 2024, the current price was 5.43 yuan/share, corresponding to the 2024-2026 PB valuation of 0.53/0.50/0.47 times. The current price space is 23%, maintaining a “buy” rating.
Risk warning: The macroeconomic economy has stalled, and the bad situation has been greatly exposed.