Description of the event
Ruifeng Bank released its 2024 quarterly report. Operating revenue increased 15.3% year on year, with net interest income up 5.6% year on year and net profit to mother increased 14.7% year on year. The non-performing loan ratio remained flat at 0.97%, and the provision coverage rate was 304.8%.
Incident comments
There was a year-on-year increase in loans, and small and micro investment is expected to be good. Total loans in the first quarter increased by 8.0% from the beginning of the period, up 3.19 billion yuan year on year. Excluding bill discounts, the year-on-year increase was still higher. Among them, public loans increased 11.3% from the beginning of the period, and personal loans increased 1.1% from the beginning of the period. It is expected that small and micro loans will be well invested. The pressure mainly comes from mortgage loans and car installment loans where regulatory requirements have dropped. It is expected that the pressure on the subsequent decline in personal loans will ease. First quarter deposits increased 4.4% compared to the beginning of the period. Among them, corporate deposits decreased by 0.7% from the beginning of the period, savings deposits increased 5.4% compared to the beginning of the period, and current accounts fell 2.4 pct to 29.54% month-on-month. Looking ahead to the whole year, it is expected that small and micro will continue to be the driving force for credit, and total loans are expected to continue to grow by double digits.
Net interest spreads declined, and debt costs continued to improve. Net interest spread for the first quarter decreased by 13BP to 1.60% compared to the full year of last year, but net interest income bucked the trend and increased by 5.6%. Growth resilience stemmed from the fact that net interest spreads for the first quarter of last year had already begun to be fully adjusted, and the base was low.
According to estimates, the yield on interest-bearing assets in the first quarter fell 14BP to 3.76% compared to the full year of last year. The repricing of major loans and interest rates on new loans were still low; the cost ratio of interest-bearing debt fell by 3BP to 2.20% compared to the full year of last year. It is expected that previous rounds of deposit interest rate cuts will drive cost improvements. In terms of small and micro subsidies, other revenue categories in 2023 are worth 147 million yuan, which strongly supports revenue growth, but considering that the incentive fund ratio was lowered from 2% to 1% in June last year, the amount may decrease this year.
Earnings returned to positive growth, and investment returns grew at a high rate. Net fee revenue increased again in the first quarter. Compared with the same period last year, the amount of handling fee expenses shrank markedly. In recent years, net revenue from handling fees has mostly been negative, and is mainly hampered by transaction and settlement costs and customer marketing expenses on the expenditure side. At present, the difference in processing fees has clearly settled, and it is expected to become a new revenue growth point in the future. Other non-interest income increased 47.3% year over year, and the main bond market conditions drove a sharp increase in investment income.
Investment equity gains are expected to be realized gradually, supporting revenue and ROE. The company further increased its shareholding in Yongkang Agricultural Commercial Bank by 1.8% in June of last year, and completed the acquisition of 5.0% of Cangnan Agricultural Commercial Bank's shares in December, continuing to increase investment income. In August of last year, it was announced that it intended to take no more than 9.8% of the shares in Zhuji Agricultural Commercial Bank. After subsequent implementation, it will further enhance its performance (financially included in the non-operating income and investment income categories). In the future, it is expected that investment in high-quality small banks in Zhejiang will continue to be promoted, and the investment targets are generally high quality, and acquisition valuations are low, which will continue to support the company's operating income and ROE.
Asset quality remained stable, and provision coverage increased month-on-month. At the end of the first quarter, the non-performing rate remained flat at 0.97% month-on-month, and provision coverage increased 0.7 pct to 304.8% month-on-month, maintaining an upward trend. As an excellent small and micro bank, Ruifeng Bank's risk control model emphasizes not simply based on apparent indicators such as collateral and debt ratios, but rather requires going deep within the enterprise to obtain relevant water, electricity, coal, operating rates, transaction data, etc., to determine substantial risks. It is expected that asset quality will continue to remain stable.
Investment advice: Ruifeng Bank had excellent performance in the first quarter. The growth rate exceeded expectations. At the same time, its holdings were still low. The long-term development logic was clear and the characteristics were clear. It is a small dark horse that cannot be underestimated. Investing in shares in high-quality small banks in Zhejiang in recent years is an effective way to increase ROE in the long term. Revenue in 2024 and net profit to mother are expected to increase by 7.8% and 12.3%, respectively. Based on the closing price on April 26, 2024, the 2024 PB valuation is only 0.54X. As a high-growth small and micro bank with prominent market-based genes, there is considerable room for appreciation in valuation. Key recommendations are recommended to maintain the “buy” rating.
Risk warning
1. Investment and shareholding progress fell short of expectations; 2. Net interest spreads exceeded expectations and declined sharply.