Key points of investment

Minsheng Bank's 2024Q1 revenue and profit were under pressure, and asset quality improved.

Performance Overview

Minsheng Bank's 24Q1 revenue and net profit to mother decreased by 5.6% and 6.8%, respectively. The non-performing rate at the end of 24Q1 decreased by 4 bps to 1.44% from the end of 23Q4, and the provision coverage rate at the end of 24Q1 remained flat at 149% compared to the end of 23Q4.

Marginal profit pressure

Minsheng Bank's 24Q1 revenue fell 5.6% year on year, from increase to decline compared to 23A; net profit to mother fell 6.8% year on year, and the decline was 5.6 pc higher than 23A. Profit continued to be under pressure, mainly due to the slowdown in scale growth and the downward impact of non-interest growth.

(1) Scale: At the end of 24Q1, the asset size only increased slightly by 1.6% year on year. Momentum continues to weaken. In the future, we need to pay attention to the restoration of asset investment.

(2) Non-interest: 24Q1 non-interest income decreased by 12.2% year-on-year. Among them, due to insurance rate adjustments, the average income fell 13.6% year on year, and the decline increased by 8.5 pc month on month; other non-interest income fell 10.7% year on year, turning into a decline from 23A. It was determined that due to the failure to grasp the domestic bond market situation in 24Q1, the impact of the high base during the 23Q1 period was compounded.

Looking ahead to the whole year, Minsheng Bank's profit pressure is expected to improve as the impact of other non-interest income base subsides and the improvement in superimposed asset quality drives depreciation pressure to ease.

Interest spreads continue to decline

The 24Q1 single-quarter interest spread (initial and end caliber, same below) was estimated to be 1.35%, down 7 bps from month to month, mainly due to the downward impact on return on assets.

(1) The return on assets in the 24Q1 quarter was 3.60%, down 16 bps from month to month. Judging that it was mainly affected by the repricing of loans and the decline in interest rates on newly issued loans.

(2) The 24Q1 debt cost ratio was 2.38% in a single quarter, down 7 bps from month to month, judging the release of dividends due to interest rate cuts on attributed deposits and actively strengthening the management of high-cost liabilities. Minsheng Bank has vigorously expanded low-cost settlement deposits. The average deposit of average settlement customers in 24Q1 was 1.3 trillion yuan, an increase of 2.6% over the beginning of the year, while total deposits at the end of 24Q1 fell 0.7% month-on-month.

Asset quality improvement

Minsheng Bank's 24Q1 risk indicators were improving month-on-month.

Looking at stock indicators, the defect rate and attention rate at the end of 24Q1 were 1.44% and 2.63%, down 4 bps and 7 bps respectively from the beginning of the year. According to dynamic indicators, the real bad TTM generation rate in 24Q1 was 1.00%, down 5 bps from 23Q4.

Profit forecasting and valuation

Minsheng Bank's net profit is expected to increase by 0.29%/3.15%/4.93% year-on-year in 2024-2026, corresponding to BPS 13.99/15.45/17.00 yuan. As of the close of April 30, 2024, the current price corresponds to the 2024-2026 PB0.28/0.26/0.23 times. The target price is 4.90 yuan/share, corresponding to 0.35 times the 2024 PB, and the current price space is 24%, maintaining the “buy” rating.

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