Description of the event
China Merchants Bank released its 2024 quarterly report. The revenue growth rate for the first quarter was -4.7% year-on-year, the net profit growth rate of -2.0%, and the year-end non-performing loan ratio was 0.92%, down 3BP from month to month. The provision coverage rate was 437%, down 0.9 pct from month to month.
Incident comments
Interest & revenue are dragging down revenue, and the decline in profit reflects operating pressure. Revenue fell 4.7% in the first quarter, and net interest income fell 6.2%, reflecting the impact of a decline in net interest spreads and a decline in the growth rate of interest-bearing assets; non-interest income fell 2.3%, of which the middle income fell 19.4%, which was a significant drag. Driven by revenue, net profit to mother fell 2.0%.
The bill impulse is driving more loans, and retail demand is still sluggish. Loans at the end of the first quarter increased by 4.7% compared to the beginning of the period. Among them, public loans increased by 7.4%, retail sales increased by 1.8%, and notes increased significantly by 11.2%. Among the various types of retail loans, parent bank small and micro loans and consumer loans increased by 5.7% and 17.6% respectively compared to the beginning of the period. At the beginning of this year, China Merchants Bank's marketing efforts in the consumer loan and operating loan sectors increased markedly, while the scale of mortgages and credit cards declined, and retail demand was still sluggish. Deposits at the end of the first quarter increased by 3.5% compared to the beginning of the period. Current accounts for 52.1% of the average daily balance of deposits in the first quarter, down 5 pcts from the full year of 2023. Since the absolute level of demand deposits is still at a high level in the industry, the pressure to regularize is still obvious.
The narrowing in net interest spreads was a highlight, and deposit costs fell month-on-month. Net interest spread for the first quarter was 2.02%, down 27BP year on year, down 2BP month-on-month in a single quarter, and the decline narrowed. Loan yield in a single quarter fell 1BP to 4.07% month-on-month, and loan yield adjustments are expected to be quite adequate. The deposit cost ratio for a single quarter fell 1BP to 1.63% month-on-month, and the impact of the reduction in listed interest rates for early deposit deposits began to gradually be reflected. It is expected that the improvement trend in subsequent deposit costs will continue, easing the pressure on net interest spreads.
Revenue declined due to fee cuts, which clearly dragged down revenue. Earnings fell sharply in the first quarter, and revenue from major wealth management fees was drastically dragged down by 33% year-on-year due to fee cuts in agency insurance and fund operations. Among them, agent insurance income fell 50% year on year under the high base, agent fund income fell 33% year on year, and agent wealth management income increased slightly by 26% year on year.
The defect rate declined month-on-month, and credit card defect indicators fluctuated. At the end of the first quarter, the non-performing loan ratio fell 3BP to 0.92% month-on-month, and the parent bank's new bad generation rate in the first quarter was 1.03%, the same as the full year of 2023. New non-performing loans were mainly contributed by retail sales.
At the end of the first quarter, the parent bank's new generation rate of non-performing retail loans increased by 7 BP compared to the full year of 2023. Among them, the rate of new bad credit card loans increased by 5 BP to 4.31%, and the credit card overdue loan rate at the end of the first quarter was 3.53%, up 33 BP from month to month. We think we need to focus on the retail risk situation this year. The quality of real estate assets is currently stable. At the end of the first quarter, the parent bank's real estate non-performing loan ratio fell 19BP to 4.82% month-on-month, due to the start of write-off and a slight expansion in the denominator side. The provision coverage rate at the end of the first quarter was 437%, down 0.9 pct from month to month, credit costs declined year on year, and provision coverage declined for nine consecutive quarters, supporting profits.
Capital is abundant, and the medium term has the ability to guarantee stable dividends. At the end of the first quarter, the core Tier 1 capital adequacy ratio was 14.1%, up 0.3 pct from month to month. Capital was abundant. The RWA growth rate was lower than the growth rate of total assets, and the RWA/total asset share declined month-on-month at the end of the first quarter.
Investment advice: The decline in profit in the first quarter reflects operating pressure in the current macro environment. The narrowing in net interest spreads was a highlight of performance. Short-term operating pressure did not affect medium- to long-term investment logic. The revenue growth rate for the full year of 2024 is expected to be -1.2%, and net profit to mother is 0.4%.
Currently, A shares are valued at 0.86x2024PB, with a dividend ratio of 35% in 2023, corresponding to the A-share dividend rate of 5.7%. We believe that China Merchants Bank's high ROE+ medium to low table expansion speed+low capital consumption business model is the reason for guaranteeing the dividend level. It is expected that the medium term will still be able to maintain stable dividends. Currently, the dividend rate is attractive and maintains 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.