Incident: China Merchants Bank released its 2023 annual report. In 2023, China Merchants Bank achieved operating income of 339.123 billion yuan, a year-on-year decrease of 1.64%; realized net profit attributable to shareholders of 146.602 billion yuan, an increase of 6.22% over the previous year.
Comment:
2023Q4 quarterly revenue and net profit growth rates recovered month-on-month. In 2023, China Merchants Bank achieved operating income of 339.123 billion yuan, a year-on-year decrease of 1.64%; realized net profit attributable to shareholders of 146.602 billion yuan, an increase of 6.22% over the previous year. For the fourth quarter, revenue fell 1.38% year on year, and the decline was narrower than the previous period (-4.58%); net profit to mother increased 5.22% year over year, and the growth rate increased 3.52 percentage points from the previous period, mainly driven by provision for backfeed.
Net interest income continues to be under pressure, and other non-interest income supports revenue growth. 2023Q4, due to factors such as continued LPR pricing pressure and mortgage interest rate adjustments, China Merchants Bank's net interest spread continued to be under pressure. Net interest income in a single quarter fell 6.63% year on year, and the decline widened month-on-month. Net income from handling fees and commissions decreased by 7.78% year on year, mainly due to the slowdown in the growth rate of agency insurance income, which was mainly dragged down by the wealth management business. Other non-interest income was the main support for revenue, which increased 76.25% year over year, or benefited from the 2023Q4 bond market earnings contribution.
AUM is growing steadily, and the retail customer base is expanding. At the end of 2023, China Merchants Bank had 197 million retail customers, an increase of 7.07% over the end of 2022, including 4.6406 million Golden Sunflower customers and above, an increase of 12.00% over the end of 2022. AUM's balance surpassed 13 trillion yuan, up 9.88% from the end of 2022.
The non-performing loan ratio remains low. At the end of 2023, China Merchants Bank's non-performing loan ratio was 0.95%, down 0.01 percentage points from the end of 2022; the provision coverage rate was 437.70%, down 13.09 percentage points from the end of 2022; the loan provision rate was 4.14%, down 0.18 percentage points from the end of 2022, and the risk offsetting capacity was still at a high level in the industry.
The high level of dividends has been raised again. In 2023, China Merchants Bank's cash dividend was 1.972 yuan per share (tax included). The dividend rate increased from 33% to 35.01%. The dividend rate corresponding to the current stock price will reach 5.65%, which highlights the high dividend value.
Investment advice: Maintain a “buy” rating. The decline in performance growth and pressure on net interest spreads are common challenges faced by the entire industry, yet China Merchants Bank's overall performance is relatively steady, and the high dividend level has increased further, and the high dividend value is prominent. China Merchants Bank's net assets are estimated to be 40.91 yuan per share in 2024, and the corresponding PB is 0.85 times the current stock price.
Risk warning: Risk that consumer consumption and corporate investment will fall short of expectations due to economic fluctuations; risk of weakening credit demand and pressure on bank asset quality due to falling short of expectations in real estate; risk that falling market interest rates will cause bank asset-side returns to decline, and net interest spreads will continue to be pressured.