Investment highlights: The Bank of Hangzhou released its 2023 annual report and 2024 quarterly report. The company's profitability remained steady, and ROA and ROE increased year-on-year. The defect rate stabilized at 0.76%, maintaining the company's “better than the market” rating.
Profitability remained steady, and ROA and ROE increased year over year. Bank of Hangzhou's revenue in 2023 was +6.33% YoY, and net profit to mother +23.15% YoY. 24Q1 revenue +3.50% YoY, net profit to mother +21.11% YoY. In 2023, ROA increased 0.05pct yoy to 0.83%, and ROE rose 1.48pct yoy to 15.57%. 24Q1 ROA increased 0.01pct yoy to 0.27%, and single-quarter ROE rose 0.27pct yoy to 4.99%.
Asset quality remains stable, and real estate risks are strictly controlled. The Bank of Hangzhou's 24Q1 non-performing rate was 0.76%, and has remained stable since 23Q1. The 24Q1 provision coverage rate was 551.23%, down 10.19pct month-on-month and 13.87pct lower than 23Q3. Overdue loans in 23Q4 increased slightly by 0.03pct to 0.62% compared to 23Q2. In terms of real estate, the loan balance of the real estate industry fell by 2,805 billion yuan year on year in 23Q4. The company's real estate development financing business accounted for a relatively low share, and provision for non-performing real estate loans was sufficient.
The scale of small, micro, and science and innovation businesses is growing steadily. The balance of small and micro finance line loans at the end of '23 increased by 19.0% compared to the end of '22, and the non-performing loan ratio was 0.59%, down 0.09pct from the end of '22. Inclusive loans accounted for 16.54% of the company's total loans, up 0.55 pct from the end of '22. The “Science and Technology Innovation Fund Engine” continuously optimizes standard products for science and innovation, serving 12,600 science and innovation enterprises, an increase of 20.98% over the end of '22. More than 95% are private enterprises, and more than 75% are small and micro enterprises. The financing balance of science and innovation enterprises at the end of '23 increased by 28.43% compared to the end of '22. The “Listed Gold Engine” has rich product coverage scenarios and continues to empower physical enterprises to develop throughout the life cycle. It has served 1,655 capital market customers, an increase of 31.77% over the end of '22.
The “six channels and six engines” help the real economy improve both quality and efficiency. The Bank of Hangzhou deepens the “Six Link Six Engine” product and service system to promote the growth of corporate loans and deposits. At the end of '23, corporate loans increased 1.81% month-on-month, and corporate deposits increased 2.87% month-on-month. The corporate loan non-performing ratio at the end of '23 fell by 3 bps to 0.84% from the end of '22.
Investment advice. We forecast EPS for 2024-2026 to be 2.75, 3.11, and 3.50 yuan (the original 2024-25 forecast was 2.79 and 3.33 yuan), and net profit growth rates of 15.96%, 13.14%, and 12.10%. We obtained a reasonable value of 18.28 yuan according to the DDM model; according to the Comparable Companies Act, the 2024E PB valuation was 1.00 times (0.62 times the comparable company), and the corresponding reasonable value was 17.89 yuan. Therefore, a target price of 18.28 yuan (corresponding to 2024 PE is 6.66 times, corresponding to PE of the same company is 4.59 times) was given, maintaining the “better than the market” rating.
Risk warning: The solvency of enterprises has declined, asset quality has deteriorated dramatically; financial supervision policies have undergone major changes.