Key points of investment

Everbright Bank's asset growth rate slowed in 2024Q1, interest spreads continued to decline, and depreciation supported a correction in profit growth.

Performance Overview

Everbright Bank's 24Q1 revenue fell 9.6% year over year, up 5.7pc from 23A. Everbright Bank's net profit to mother increased 0.4% year-on-year in 24Q1, and the profit growth rate corrected. Everbright Bank's defect rate at the end of 24Q1 was 1.25% compared to the end of 23Q4, and the provision coverage rate increased by 4pc to 185% compared to the end of 23Q4.

Profit growth rate recovers

Everbright Bank's net profit to mother increased 0.4% year-on-year in 24Q1, and the profit growth rate corrected. In terms of driving factors, the main support items are impairment, and the main drag items are size and interest spreads.

(1) Scale: Total assets increased 3.0% year on year at the end of 24Q1, a significant decrease of 4.5 pc from the end of 23Q4. Looking at a single quarter, the total asset balance at the end of 24Q1 increased by only 1.8% month-on-month. Among them, loans increased 3.1% month-on-month, and interbank assets grew negatively by 6.5% month-on-month. The sharp negative growth in interbank assets is presumed to be an act of financial tightening due to insufficient deposit growth. The 24Q1 deposit balance increased 2.5% month-on-month, lower than the loan growth rate of 0.6pc.

(2) Interest spread: 24Q1 estimates that the single-quarter interest spread (early and end of the period, same below) fell 13 bps to 1.53% month-on-month compared to 23Q4, dragging down revenue.

(3) Impairment: 24Q1 impairment decreased sharply by 21.4% year on year, while 23A impairment increased by 3% year on year. The intensity of impairment calculation decreased significantly, supporting profit.

Interest spreads continue to decline

The 24Q1 net interest spread was 1.53%, down 13 bps from 23Q4, mainly due to the decline in asset-side returns.

① Asset side: The return on assets in the 24Q1 quarter was 3.85%, down 14 bps month-on-month, and the decline was greater than industry performance.

② Debt side: In 24Q1, the cost ratio of debt in a single quarter was 2.40%, a slight increase of 1 bps from month to month. The judgment was mainly due to an increase in the share of interbank debt and issued bonds. Looking at a single quarter, the balance of interbank debt and issued bonds at the end of 24Q1 increased 5.6% and 4.8%, respectively, higher than deposit growth rates of 3.1 pc and 2.4 pc, respectively.

Looking ahead, Everbright Bank's net interest spread will continue to be under pressure to narrow due to LPR cuts and low market interest rates.

Defects remain stable

According to static indicators, the non-performing rate at the end of 24Q1 remained flat at 1.25% compared to the end of 23Q4, and asset quality remained stable.

According to dynamic indicators, the 24Q1 bad TTM generation rate decreased by 68 bps to 0.85% compared to 23Q4, and the generation pressure improved markedly. At the same time, provision coverage increased by 4pc to 185% month-on-month at the end of 24Q1, and risk compensation capacity was enhanced.

Profit forecasting and valuation

In 2024-2026, Everbright Bank's net profit to mother is expected to increase by 0.56%/2.24%/4.22% year-on-year, corresponding to BPS 8.05/8.51/8.99 yuan. As of the close of April 30, 2024, the current price corresponds to the 2024-2026 PB0.39/0.37/0.35 times. The target price is 3.84 yuan/share, corresponding to 0.48 times the 2024 PB, and the current price space is 22%, maintaining the “buy” rating.

Risk warning: The macroeconomic economy has stalled, and the bad situation has been greatly exposed.