Financial report summary: 1. Shanghai Agricultural Commercial Bank's 1Q24 revenue +3.9% YoY (vs 2023 YoY +3.0%), 1Q24 net profit +1.49% YoY (vs 2023 +10.64% YoY). Results for the full year of 2023 were steady. The decline in 1Q24 profit growth was mainly due to credit impairment losses of +72.2% year-on-year, which is expected to be disrupted mainly by an increase in off-balance sheet credit commitments. It is expected that 2Q24's performance may be under slight pressure due to 2Q23's high base (additional non-operating income of 469 million yuan due to confirmed participation in Hangzhou Union Bank in Q2 in 2023), and the results for the second half of the year may pick up. 2. Net interest income in a single quarter was +1.4% month-on-month, and net interest spread was -3 bps month-on-month; retail led to an improvement in debt costs. The Q1 net interest spread fell 3 bps to 1.52% month-on-month, and the return on annualized assets fell 10 bps to 3.42% month-on-month; the interest rate on interest-bearing debt fell 7 bps to 1.99% month-on-month. It is expected that the deposit-side cost pressure drop will release results. In particular, interest rates on retail deposits continued to drop 15 bps from the end of the previous year. 3. Assets and liabilities: Investment in public support has reduced the share of real estate; the trend of regularization has slowed in the second half of 2023. (1) Assets: Driven by owners, the share of real estate is falling steadily; retail investment is weak. In the first quarter, interest-bearing assets increased 9.3% year over year; total loans increased 6.1% year over year. 1Q24 added 11.9 billion new loans in a single quarter, an increase of 1 billion yuan over the same period last year. New public, retail, and notes added in the first quarter were 6.5 billion, -5.7 billion, and 11 billion, respectively. Public transactions (including bills) are the main driving force, and the scale of retail sales has shrunk. By the end of 2023, the share of real estate loans to the public had decreased by 0.3 points to 14.7% compared to 1H23, and the share of real estate loans declined steadily.
(2) Liabilities: The growth rate of deposits and loans matched; the trend of regularization slowed in the second half of 2023. 1Q24 interest-bearing liabilities increased 9.7% year over year; total deposits increased 6.2% year over year. In 1Q24, deposits increased by 4.9 billion yuan in a single quarter, an increase of 13.7 billion yuan compared to the same period last year. There was a slight positive increase in active interest periods throughout 2023. The bank's active account fell slightly by 0.2 points to 33.3% compared to 1H23, and the trend of deposit regularization slowed down. 4. Net non-interest income: Reduced insurance premiums dragged down Q1 processing fees, and other non-interest rates were +69% YoY. Net non-interest revenue growth rate rebounded in 1Q24, +22% YoY (vs 17% YoY in 2023).
(1) Handling fee: 2023 processing fee +5.2% (vs 3Q23 +14.6% year over year), 1Q24 handling fee is -23.8% year over year, mainly due to a decrease in related income due to a decrease in consignment insurance rates. (2) Other non-interest income: Net other non-interest income +26.4% YoY in 2023 (vs 3Q23 +20.4% YoY); 1Q24 increased 69% year over year, mainly driven by investment income and one-time income from housing expropriation. 5. The defect rate remains within 1%, the overdue rate has decreased, and the margin of safety is still high; the defect rate continues to be optimized. (1) Defects: The 1Q24 defect rate increased by 2 bp to 0.99% month-on-month, and the overall level is relatively stable. The share of concerned loans increased 4 bps month-on-month to 1.27%. (2) In terms of specific business defects, as of the end of 2023, the non-performing ratio of public servants fell by 3 bps to 1.1% month-on-month, maintaining a downward trend. Among them, the real estate defect rate increased 40 bps to 2.18% month-on-month, but it is still at a low level in the industry. The retail defect rate increased 18 bps month-on-month to 1.12%. (3) Overdue rate: 2023 overdue rate decreased by 11bps to 1.25% compared to 1H23.
(4) Provision: The provision coverage rate decreased by 23.14 points month-on-month to 381.84%, mainly due to increased write-off efforts. The margin of safety is still high; the loan ratio is 3.79%, a decrease of 15 bps month-on-month. 6. The dividend was maintained at 30% +, and the core Tier 1 capital adequacy ratio was further increased. 7. Science and innovation: Science and innovation loans increased 29.9% year-on-year in 2023, and continued to increase 11.2% in 1Q24 compared to the end of 23, maintaining a high growth rate.
Investment recommendations: Company 2024E, 2025E, 2026E PB 0.60 X/0.56X/0.52; PE5.68 X /5.43X/5.21X. The Shanghai Agricultural Commercial Bank is rooted in Shanghai, spans the Yangtze River Delta, and has an excellent business location; sufficient capital, stable asset quality, and high dividends are expected to continue. Science and innovation finance has gradually gained strength in recent years, retail transformation is beginning to bear fruit, and business licenses are expected to gradually be implemented. Short-term performance pressure did not affect its long-term steady characteristics and maintained an “gain” rating.
Based on the published financial reports, we adjusted our profit forecast and estimated net profit for 2024-2025 to be 12.7 billion yuan and 13.3 billion yuan (previous value was 13.1 billion yuan and 13.3 billion yuan).
For details on the business characteristics and core competitiveness of the Shanghai Agricultural Commercial Bank, see our previous in-depth report “In-depth Recommendation | Shanghai Agricultural Commercial Bank: Stable Characters, Determination of Increments; Strong Business and Performance Sustainability”.
Risk warning: The economic downturn exceeded expectations, and the company's operations fell short of expectations.