Key points of investment

Event: The company released its report for the first quarter of 2024. In Q1, the company achieved operating income of 219.843 billion yuan (-3.41%, YoY) and net profit to mother of 87.653 billion yuan (-2.78%, YoY). At the end of Q1, the company's total assets were 47.60 trillion yuan (+13.24%, YoY), the non-performing loan ratio was 1.36% (flat, QoQ), and the non-performing loan provision coverage ratio was 216.31% (+2.34pct, QoQ).

Credit growth has slowed, and structural differentiation has subsided slightly. At the end of Q1, ICBC's total assets increased 13.24% year on year to 47.6 trillion yuan, a slight increase from the end of Q4 2023. The increase in total asset growth is mainly due to the rapid growth of purchased and resold assets. The growth rate of loans and financial investment is in line with industry trends and has slowed down. At the end of Q1, the total loan amount (excluding accrued interest) increased 11.60% year over year to 27.37 trillion yuan. The growth rate was 0.78 percentage points slower than at the end of 2023Q4, reflecting a credit trend that reduced incremental growth. Structurally, Q1 added 12772, 2132, and 206.7 billion yuan in discounts for public loans, personal loans, and notes, respectively, an increase of 160, an increase of 500 yuan, and an increase of 63.2 billion yuan compared to the same period last year. The slight decrease in public investment was either due to a slowdown in growth in inefficient investment sectors in the process of revitalizing stocks, and a slowdown in downward investment due to downsizing of incremental investment. Investment in the inclusive sector continues to increase against the backdrop of an increase in personal loans or the continuing slowdown in consumer and housing demand. There has been a decrease in bill discounting or mainly because there is little pressure to invest in credit, and impulse motivation is weakening. Affected by the high base of deposit returns and the marginal slowdown in credit derivation, the growth rate of total ICBC customer deposits (excluding accrued interest) at the end of Q1 slowed by 2.61 percentage points to 9.53% from the end of 2023Q4, reaching a scale of 34.53 trillion yuan.

The upward pressure on debt costs has abated markedly, and the decline in net interest spreads has narrowed markedly. The Q1 net interest spread of ICBC in a single quarter was 1.48%, down 22 bps year on year, and the decline narrowed markedly (vs. the fall range of interest spreads for each quarter of 2023 was 29 bp to 33 bps), mainly due to a marked easing of pressure on the debt side. On the asset side, affected by LPR repricing, the estimated yield rate decreased by about 25 bp to 3.25% year on year; on the debt side, as repricing gradually penetrated, the upward pressure on costs was further clearly mitigated. It is estimated that the Q1 interest rate rose by about 2 bp to 1.98% year on year, and the increase narrowed drastically (VS increases in deposit regularization in 2023, and the interest rate increase range for each quarter is 9 bps to 31 bps). On a month-on-month basis, the Q1 net interest spread increased by 4 bps compared to Q4 in 2024. This is mainly due to the seasonal recovery in asset-side returns. This is related to the Q1 ICBC's strategic focus on investing in high-yield assets such as retail. It is estimated that the Q1 interest rate increased by 7 bp to 3.25% month-on-month.

Revenue from intermediary business is still under pressure, and income from investment transactions has benefited from rapid growth in the bond market. In Q1, the company achieved net revenue from processing fees and commissions of 39.342 billion yuan, a year-on-year decrease of 2.83%. It is expected to be mainly affected by capital market and asset management rate reforms. Currently, residents' risk appetite and capital market performance are recovering slowly, and the recovery process of intermediary business revenue is slower than expected. It is worth noting that at this stage, capital market performance is relatively positive, and the impact of asset management rate reform is gradually being digested, which is of positive significance for the improvement of intermediary business revenue. Benefiting from good bond market conditions, ICBC achieved investment income+fair value change profit and loss of 14.234 billion yuan in Q1, an increase of 18.60% over the previous year.

Asset quality is steady, accounting efforts have increased sequentially, and fee control has remained strong. Benefiting from a good customer base, ICBC's asset quality remains stable. The non-performing loan ratio at the end of Q1 was 1.36%, flat from month to month, and remained the lowest level in recent years. The non-performing loan provision coverage rate was 216.31%, up 2.34 percentage points from month to month, and the loan provision rate was 2.94%, up 4 bps from month to month. The increase in the level of provision coverage was mainly due to a marked increase in accrual strength, with impairment losses of 60.75 billion yuan in Q1 assets, down 7.61% year on year. The decline was significantly narrower than in the second half of 2023 (VS 2023Q3 and Q4 decreased 28.52% and 76.99%, respectively). Affected by this, credit costs rebounded to 0.22% (VS 2023Q3 and Q4 respectively 0.10% and 0.01%, respectively). Loan impairment provisions increased by 45.87 billion yuan month-on-month (VS 2023Q3 and Q4 respectively increased by 55.63 billion yuan month-on-month) 100 million yuan and a decrease of 368 million yuan). In Q1, ICBC generated 45.685 billion yuan in business and management expenses, a slight increase of 0.60% over the previous year, and a corresponding cost-revenue ratio of 20.78%, maintaining a low level.

Profit forecasting and investment advice: Under the direction of credit with a more balanced incremental and structured credit structure, the company's size growth is expected to slow further.

The effect of interest rate cuts is gradually reflected in repricing. The return on assets is expected to narrow further. At the same time, as deposit interest rate cuts and repricing progress, the debt-side cost ratio is expected to improve and thus cushion the downward pressure on interest spreads. It is expected that the company's net interest spread will continue to narrow but the slope will slow down. The company has a good customer base, thorough risk identification, and good resilience during the macroeconomic slowdown. The quality of the company's assets is expected to remain steady and progressive. Q1's interest spread and scale growth were better than our expectations. Furthermore, we optimized the repricing rhythm model and adjusted profit forecasts accordingly. The company's revenue for 2024-2026 is estimated to be 8325, 8552, and 899.2 billion yuan (the original forecast was 8311, 887, and 920.3 billion yuan), corresponding growth rates were -1.25%, 2.72% and 5.15%, and net profit to mother was 3648, 372.7, and 388.9 billion yuan, respectively (the original forecast was 3607, 3774, 395.5 billion yuan), corresponding growth rates were 0.22% and 2.17 billion yuan, respectively % and 4.35%. The net assets per share attributable to common shareholders at the end of the period were $10.28, 10.94, and 11.64. The PB corresponding to the closing price of 5.38 yuan on May 9 was 0.52, 0.49, and 0.46 times, respectively. The company operates steadily, has a good customer base, a stable dividend ratio, and maintains a “gain” rating.

Risk warning: Asset quality in the inclusive sector has deteriorated dramatically, loan interest rates have declined sharply, and deposit regularization has intensified.