Incidents:
China Merchants Bank released its 2014 quarterly report. In 24Q1, it achieved revenue of 86.417 billion yuan, -4.65% year over year, growth rate compared to 23 -3.01 PCT; net profit to mother was 38.077 billion yuan, -1.96% YoY, and growth rate of -8.19 PCT in '23.
Performance is under pressure in the short term, and the impact of adverse factors still needs to be digested
China Merchants Bank's revenue growth rate declined marginally, mainly due to weakening interest spread business and middle income. In 24Q1, China Merchants Bank's net interest income and revenue were -6.15% and -19.44%, respectively. There was a deep negative increase in revenue, mainly due to fee cuts for some products combined with weak customer willingness to invest, leading to a marked decline in wealth management revenue. In 24Q1, China Merchants Bank's wealth management fees and commission revenue was $6.141 billion, -32.59% year-on-year. China Merchants Bank's net profit growth rate declined marginally, mainly due to increased interest spreads and a decline in the contribution of compounded provisions. The contribution of China Merchants Bank's net interest spread and provision calculation to net profit in 24Q1 was -15.57% and +2.47%, respectively, compared with -4.24PCT and -6.56PCT in '23, respectively.
The public sector supports credit growth, and the drag on interest spreads has worsened
In 24Q1, China Merchants Bank's net interest income was -6.15% year-on-year, and the growth rate was -4.52PCT in '23. In terms of credit investment, as of the end of 24Q1, China Merchants Bank's loan balance was 6.82 trillion yuan, +7.57% year-on-year, with a growth rate of +0.01PCT in 23 years. Credit investment has remained stable overall, and remains the main support for the public sector. In 24Q1, China Merchants Bank added 306.962 billion yuan in loans, of which 1920.27 and 62.365 billion yuan were added to the public and retail sectors respectively, accounting for 62.56% and 20.32% of the new loans respectively. Looking at the net interest spread, China Merchants Bank's 24Q1 net interest spread was 2.02%, compared to 23-13 BP. The net interest margin narrowed, mainly being dragged down by the asset side.
The average yield of 24Q1 China Merchants Bank loans was 4.07%, compared to 23-19BP, mainly due to: 1) Multiple LPR cuts in '23 led to strong repricing pressure in 24Q1. 2) The impact of interest rate adjustments on pre-existing mortgages still needs to be digested. 3) The current demand for effective financing is insufficient, and interest rates on new loans are low.
Consolidate asset quality, and the retail side is still under pressure in the short term
As of the end of 24Q1, China Merchants Bank's non-performing rate, attention rate, and overdue rate were 0.92%, 1.14%, and 1.31%, respectively, compared to 3BP, +5BP, and +5BP at the end of 23, respectively. Asset quality fluctuates slightly, and it is expected that the pressure is still high, mainly due to poor retail side. The bad generation rates for China Merchants Bank credit cards and non-credit card retail loans in 24Q1 were 4.31% and 0.52%, respectively, compared to +5BP and +13BP in 23, respectively. In terms of asset disposal, China Merchants Bank stepped up its efforts to dispose of non-performing assets. In 24Q1, it disposed of 15.288 billion yuan of non-performing loans, +11.89% over the same period last year. Of this amount, loans of 7.072 billion yuan were written off, +58.64% year-on-year, and asset quality continued to be consolidated. In terms of provision, as of the end of 24Q1, China Merchants Bank's provision coverage rate was 436.82%, respectively. Compared with the end of 23 -0.88PCT, the provision coverage rate decreased slightly but was still high, and the risk compensation capacity was sufficient.
Profit Forecasts, Valuations, and Ratings
Considering that the current interest spread business is still under high pressure, we expect the company's revenue for 2024-2026 to be 3440.95, 3667.68, and 391,290 billion yuan respectively, with year-on-year growth rates of +1.47%, +6.59%, and +6.69%, respectively, and a 3-year CAGR of 4.89%. Net profit attributable to mother was 1551.67, 164.6.50, and 176.221 billion yuan respectively. The year-on-year growth rates were +5.84%, +6.11%, and +7.03%, respectively. The 3-year CAGR was 6.33%. Since the company's wealth management and customer base advantages are still significant, we gave a target price of 41.89 yuan, maintaining a “buy” rating.
Risk warning: Steady growth falls short of expectations, and asset quality deteriorates.