Key points of investment
CCB's 24Q1 earnings came under slight pressure; looking ahead to the full year, profit growth is expected to return to 0%.
Performance Overview
CCB's net profit for 24Q1 fell 2.2% year on year; revenue fell 3.0% year on year. The defect rate decreased by 1bp to 1.36% month-on-month at the end of 24Q1; provision coverage decreased by 2pc to 238% compared to the end of 23Q4.
Profits are under slight pressure
CCB's net profit for 24Q1 fell 2.2% year on year; revenue fell 3.0% year on year. Let's look at the driving factors:
(1) Scale: Total assets increased 7.5% year-on-year at the end of 24Q1, down 3.3 pc from the end of 23Q4. The slowdown in scale growth stemmed from CCB taking the initiative to control the scale of credit investment and depressing the assets of peers. Total loans increased 11.1% year on year at the end of 24Q1, down 1.5pc from the end of 23Q4; interbank debt decreased 16.4% year on year at the end of 24Q1.
(2) Interest spread: The 24Q1 single-quarter interest spread (early and end of the period, same below) decreased by 3 bps to 1.56% compared to 23Q4.
(3) Non-interest: 24Q1 non-interest income decreased by 5.2% year-on-year, increasing and declining from 23A. Among them, 24Q1 revenue decreased by 8.7% year on year, and the decline was 8.4pc higher than 23A, attributing the impact of the reduction in insurance consignment rates. At the same time, the 24Q1 non-interest rate increased 8.6% year over year, and the growth rate decreased by 44.5 pc compared to 23A. It was determined that CCB's foreign currency bond investment valuation declined due to a recovery in overseas interest rates in Q1.
(4) Impairment: The 24Q1 impairment decreased by 6.6% year on year, and the decline was 4.9pc narrower than 23A, which dragged down profits.
Looking ahead to the whole year, due to declining interest spreads, CCB's revenue is expected to increase negatively, but profit growth is expected to correct.
Interest spreads declined month-on-month
The 24Q1 single-quarter interest spread was 1.56%, down 3 bps from 23Q4, mainly due to the decline in return on assets.
(1) Asset side: The yield on the asset side in 24Q1 was 3.28% in a single quarter, down 5 bps from month to month, mainly affected by declining loan interest rates and low interest rates in the financial market.
(2) Debt side: The debt-side cost ratio for the 24Q1 quarter was 1.92%, down 2 bps from month to month. Benefiting from the release of deposit interest rate reduction dividends, the debt structure improved. Deposits increased 6.3% month-on-month at the end of 24Q1, faster than the debt growth rate of 2.6 pc.
Looking ahead, it is expected that CCB's subsequent interest spreads will still face downward pressure, but considering the high and low levels of CCB's interest spread base in 2023, the impact of subsequent interest spreads on profits is expected to improve.
Stable asset quality
On the negative side, CCB's defect rate fell 1 bp to 1.36% month-on-month at the end of 24Q1, and the defects remained stable.
In terms of provision, the provision coverage rate decreased by 2pc to 238% compared to the end of 23Q4, and the provision level dropped slightly.
Profit forecasting and valuation
CCB's net profit is expected to increase by 0.39%/4.32%/4.68% year-on-year in 2024-2026, corresponding to BPS of 12.75/13.73/14.76 yuan. The current price is 7.12 yuan/share, corresponding to 2024-2026 PB 0.56/0.52/0.48 times.
The target price is 8.28 yuan/share, corresponding to 0.65 times the 2024 PB, with 16% space, maintaining the “buy rating”.
Risk warning: The macroeconomic economy has stalled, and the bad situation has been greatly exposed.