Incident: Bank of Ningbo released its report for the first quarter of 2024: The company achieved revenue of 17.51 billion yuan, 5.8% year on year, and net profit to mother of 7.01 billion yuan, up 6.3% year on year. The 1Q24 annualized ROE was 15.51%, down 1.39pct year on year; at the end of the first quarter, the company's non-performing rate was 0.76%, and the provision coverage rate was 431.63%.
Comment:
The core revenue growth rate is better than that of the industry, benefiting from the rapid growth of net interest income under stable volume parity. 1Q24's revenue growth rate was 5.8%, which is still better than the industry. In particular, core revenue (net interest income+net handling fee revenue) increased by 12.9 billion yuan, up 6.8% year on year. Net fee revenue in 1Q24 fell 22.8% year on year, accounting for only 8.2% of revenue. We are concerned about whether the subsequent recovery in the capital market brought about a year-on-year improvement.
Profit growth is slowing, revenue declines, and tax impacts are the main causes of marginal changes. 1Q24 profit increased 6.3% year over year and continued to decline from 1Q23 and the full year of 2023. 1Q24 Decomposition of profit drivers - scale (+18.1pct), interest spread (-5.9pct), non-interest (-6.4pct), cost (+3.2pct), provision (+1.8pct), and tax (-4.6pct): the scale contribution remained stable compared to 1Q23 and 2023; the negative impact of interest spreads increased year-on-year and improved month-on-month; the negative impact of non-interest spreads expanded, judging the impact of declining net fee revenue due to a decline in capital market-related businesses such as mainly financial and consignment sales; the impact of taxation was in line with seasonal regulations; Cost control and allocation Be prepared to make up for a slight positive contribution to profit.
Points worth paying attention to:
① Net interest spreads have stabilized marginally, and debt costs have declined. The 1Q24 net interest spread was 1.90%, narrowing by 10 bps year on year, up 2 bps from 23FY, showing signs of stabilization. According to our estimates, asset-side returns continued to decline, but debt-side cost ratios changed from quarterly increases to declines in '23. We estimate the debt cost ratio for 1Q24 to be about 2.12%, down 3 bps from 23FY. Q1 The decrease in the cost of debt is mainly due to the increase in low-cost deposits. The data shows that Q1 corporate deposits increased by 193.8 billion dollars, an increase of 16.8% over the end of the previous year, or related to the acceleration of corporate loan investment to form corporate settlement deposit reserves, showing that the company's corporate customers are more sticky.
② Strong investment in credit has not weakened the growth of public and retail loans. Corporate loans increased 8.7% from the beginning of the year and 24.2% year-on-year. Among them, public loans increased by 12.8% compared to the beginning of the year, and personal loans increased by 2.7% compared to the beginning of the year, in line with the seasonal rule of the first quarter, which mainly focused on public investment. Investment in individual loans is still strong, and the year-on-year increase also reached 27.3%. The company's interest-bearing assets increased 13.6% year over year and remained stable. Structurally, the increase in the share of credit will help mitigate the decline in asset-side returns. On the debt side, deposit growth remained good, or was mainly due to increased deposit marketing controls and strong customer stickiness.
③ Asset quality has fluctuated, and provision coverage has declined. The 1Q24 defect rate was 0.76%, stable month-on-month, and has remained stable at a low level for 5 consecutive quarters. Note that the loan ratio continued to rise month-on-month, rising 9 bps to 0.74% month-on-month in 1Q24. Combined with the annual report data, the 23FY plus write-off failure rate was 0.96%, an increase of 9 bps over 1H23. The 1Q24 provision coverage rate was 431.6%, down 29.5 pct from month to month, 3.27% from loan, down 22 bps from month to month. Since 3Q22, the company's write-off and disposal has been weak, but the level of provision has continued to decline. On the one hand, it is related to the merger of consumer finance companies; on the other hand, it may be related to an increase in the generation of bad retail loans, or mainly to an increase in the generation of bad retail loans. Overall, the quality of the company's assets and provision levels have declined slightly. We believe that retail loan risks are still fluctuating within a normal range, in line with the industry situation, and further observation is needed in the future.
Investment advice: The company's quarterly profit growth rate has slowed, but the growth rate of core revenue is relatively good. Among them, net interest spreads bucked the trend and showed signs of stabilization, stemming from an increase in the share of credit on the asset side, an increase in the share of debt-side deposits, and optimization of deposit structures. The company's asset quality and provisions have declined slightly from the previous excellent level. Mainly, the pressure generated by poor retail sales has increased, but it is in line with industry conditions and needs to be further observed. Considering that the company's risk control continues to be prudent, we expect net profit growth rates of 6.1%, 11.6%, and 12.0% respectively in 2024-2026, with corresponding BVPS of 30.16, 34.00, and 38.29 yuan/share, respectively. The closing price on April 30, 2024 was 22.93 yuan/share, corresponding to 0.76 times 24-year PB.
We continue to be optimistic about the company's high growth: First, Bank of Ningbo is deeply involved in the Yangtze River Delta region and is expected to continue to benefit from regional economic development. Second, the company's institutional mechanism has a high degree of marketization, strong strategic execution, and a solid foundation for high-quality business expansion. Historical data shows that the company has continuous forward-looking quantitative and price control capabilities, prudent risk control capabilities, and the ability to diversify its business. Third, the strategy of big retail and light capital continues to advance, and diversified profit centers are gradually being consolidated. It is expected to maintain ROE resilience, give 0.9 times PB for 24 years, and maintain a “highly recommended” rating.
Risk warning: Economic recovery and physical demand have fallen short of expectations, and the speed of statement expansion, net interest spread levels, and asset quality have been impacted.