Key investment points: Bank of Changsha's 2023 revenue increased 8.46% year on year, net profit to mother increased 9.57% year on year; 24Q1 revenue increased 7.89% year on year, and net profit to mother increased 5.75% year on year.

The company explores consumer loan demand based on a broad retail customer base. Retail AUM increased, while the proportion of new overdue loans declined marginally. We maintained a “superior to the market” rating.

Consumer loans have risen to prominence. The company explores potential retail customer needs and implements a precise marketing strategy of “one product+one type of customer group+one set of play+one pricing model” for customer segments such as payroll, provident funds, and mortgages. The annual increase in consumer loans ranked first in Hunan Province, with a year-on-year increase of 22%. The net increase in consumer loans accounted for 39% of the net increase in loans in the second half of '23.

Qualified as fund custodian, wealth management bucked the trend. In '23, the number of the company's wealth customers increased 20% year on year, and retail AUM increased 21% year on year; comprehensive promotion of advanced plans and hierarchical customer management, agency fee revenue increased 114% year over year, driving revenue growth of 16% year over year. In '23, the company was approved for fund custody, filling the gap in this business in Hunan Province.

The non-performing rate declined steadily, and the proportion of new overdue loans declined. Bank of Changsha's non-performing rate at the end of '23 decreased by 1bP to 1.15% compared to 23q3, and the 24Q1 non-performing rate remained at 1.15%. At the end of 23, the company's share of overdue loans was 1.53%, down 6 bps from the end of 23Q2. Among them, the share of loans overdue within three months decreased by 16 bps to 0.57% compared to the end of 23Q2.

Benefiting from the new capital regulations, the capital adequacy ratio increased at the same time as the table was expanded. In 24Q1, the company's assets maintained a year-on-year growth rate of more than 10%, while the year-on-year growth rate of loans remained above 14%. After the implementation of the new capital regulations, the company's core Tier 1 capital adequacy ratio rose to 9.70%, and the weighted risk asset coefficient (RWA/total assets) decreased by 2.37 pct to 60.67% year on year.

Investment advice. We forecast EPS of 1.94, 2.12, and 2.23 yuan in 2024-2026, with net profit growth rates of 8.95%, 8.54%, and 5.08%. We obtained a reasonable value of 9.65 yuan based on the DDM model (see Table 2); according to the PB-ROE model, the 2024E PB valuation was 0.60 times (0.64 times that of a comparable company), and the corresponding reasonable value was 9.91 yuan. Therefore, the reasonable value range was 9.65-9.91 yuan (4.97-5.10 times PE for 2024, 4.78 times PE for same industry companies), maintaining the “superior to market” rating.

Risk warning: The solvency of enterprises has declined, asset quality has deteriorated dramatically; financial supervision policies have undergone major changes.