Description of the event
Bank of Ningbo released its 2024 quarterly report. Operating revenue increased 5.8% year on year, with net interest income rising 12.2% and net profit attributable to mother increasing 6.3% year on year. The defect rate stabilized at 0.76%, and the provision coverage rate fell 29pct to 432% month-on-month.
Incident comments
Both sides of the deposit and loan have achieved a good start and insisted on rapid table expansion. Loans in the first quarter increased by 8.7% compared to the beginning of the period. The growth rate and increase were significantly higher than the same period in the past three years, and credit had a good start. Structurally, loans to public loans increased by 13% compared to the beginning of the period, retail loans increased by 2.7%, and bill discounts increased by 11.2%. In the past two years, under downward pressure from the economy, Bank of Ningbo has maintained rapid credit expansion, driving the share of loans in total assets to 46%, and at the same time expanding the customer base. In the second half of last year, consumer finance boosted a sharp increase of 32% in retail loans throughout the year, succeeding public loans as a new growth point. We judge that this year's loans will maintain an impressive growth rate of more than 12% under a high base. Deposits increased by 16.2% in the first quarter compared to the beginning of the period, maintaining the momentum of rapid expansion every year. Among them, public deposits and retail deposits increased by 16.8% and 14.5% respectively.
Net interest spreads bucked the trend and net interest income grew strongly and at a high rate. Net interest spreads for the first quarter bucked the trend and rebounded by 2BP to 1.90% compared to the full year of 2023. The performance was significantly superior to the industry, driving a strong 12.2% increase in net interest income, leading among major banks. The revenue growth rate was high and did not depend on short-term investment income. The estimated yield on interest-bearing assets decreased by 6BP to 4.10% compared to the full year of 2023, which is relatively stable; the estimated cost ratio of interest-bearing debt decreased by 2BP to 2.13% compared to the full year of 2023. The deposit cost ratio is expected to improve, reversing the upward trend in interest payment rates last year. The main source of the recovery in net interest spreads is the continuous optimization of the overall balance and liability structure. The growth rate of the size of interest-bearing assets exceeds that of interest-bearing liabilities, and the share of loans continues to increase, driving an increase in operating efficiency.
Handling fees drag down non-interest income and prudently release investment returns. Net revenue from handling fees fell 22.8% year on year in the first quarter, which is a core factor dragging down revenue. It is common to the industry and is mainly dragged down by the wealth management business. Investment and other non-interest income increased slightly by 3% year over year. It did not follow the example of peers to release investment income on a large scale and boost revenue growth. The balance of other comprehensive income in net assets has grown to 7.8 billion yuan, and the amount at the end of 2022 and 2023 was 3.7 billion yuan and 5.8 billion yuan respectively, which is a potential for future growth. In addition, there was a single one-time disposal revenue of 284 million yuan in the same period last year, which also affected the revenue base.
The non-performing rate remains flat, and credit impairment is carefully and fully calculated. The non-performing loan ratio remained low at 0.76% at the end of the first quarter, but it is estimated that the net generation rate (annualized) of non-performing loans plus write-offs was about 1.28%, continuing to rise 28 BP from the fourth quarter of last year. It is expected to mainly reflect fluctuations in the asset quality of online retail loans and small and micro loans, which is common to the industry. Credit impairment was still carefully and fully calculated in the first quarter, while write-off efforts were stepped up, causing the provision coverage rate to drop by 29pct to 432% month-on-month.
The cost-revenue ratio declined year on year, and rising tax rates dragged down profit growth. At the end of the first quarter, the cost-revenue ratio decreased by 2.2 pct to 31.5% year on year, saving expenses to a certain extent, so PPOP's year-on-year growth rate reached 9.0%. However, the year-on-year increase in the income tax rate is an important reason for the decline in net profit. It is estimated that the pre-tax profit growth rate reached 10.5%.
Investment advice: maintain the undertone of growth and focus on long-term value. Bank of Ningbo's performance has decelerated in the past two years, but core indicators such as net interest income, net interest spreads, and loan expansion are clearly superior to the industry, making every effort to increase the customer base size advantage. In the short term, based on the macro environment, credit impairment is fully calculated and investment returns are prudently released. We believe that with the steady recovery of the economic cycle, the flexibility of performance growth will lead the industry. Currently, it is an opportunity to lay out long-term value. Revenue is expected to grow at 6.2% and net profit to mother at 9.4% in 2024. Based on the closing price on May 6, the current valuation is 0.76x2024PB, maintaining a “buy” rating.
Risk warning
1. The downward pressure on the economy increased, and net interest spreads continued to narrow; 2. Asset quality fluctuated, and the non-performing rate increased markedly.