The quality of business is steady and progressive. It is expected that Q2 performance will continue to be stable. China CITIC Bank's fundamental support has been strengthened in recent years. The 2023Q1 revenue growth rate has been corrected and the growth rate is the second highest among listed stock banks that have disclosed annual reports, and growth resilience continues to be good. We expect its Q2 operating performance to remain stable, maintaining China CITIC Bank's profit forecast for 2024-2026. We expect net profit to be 72.1/79.3/82.9 billion yuan, YoY +7.5%/10.0%/4.6%, respectively; the current stock price corresponding to 2024-2026 PB is 0.5/0.4/0.4 times, respectively, maintaining a “buy” rating.

Q2 After the ban on manual interest payments was introduced, it is expected that deposit cost rates may decrease, and interest spreads are expected to be supported by the large central enterprise CITIC Group, which has a deep base of public customers. In recent years, the deposit balance of strategic customers has continued to increase. By the end of 2023, deposit balances of major customers accounted for 38% of public deposits, an increase of 3 pcts year on year, and loan balances from major customers account for 35% of loans to the public, an increase of 4 pcts year on year. After the ban on manual interest payments was introduced in early April, deposit costs and benefits for state-owned banks and stock banks were significant. In the “Brief Review of “Manual Interest Compensation”, we estimated that the annual deposit cost rate of listed banks may drop by 5 BP on average. Among them, China CITIC Bank may have declined by 12 BP, which is expected to improve the trend of narrowing interest spreads and form strong support for net interest income. In addition, regulations guide banks to weaken the scale of deposits and loans, and pay more attention to the quality of growth. Banks' demands for high-interest savings and low-interest loans have weakened. It is expected that China CITIC Bank's asset structure will also be optimized, and the return on assets may be reduced, helping to improve the trend of interest spreads.

Non-interest income may be under pressure, but the non-performing rate may remain low. The certainty of dividends shows that investment value is affected by factors such as capital market fluctuations and “integration of insurance reporting”. Banks' mid-income growth in recent years has been under pressure, while the growth in non-interest income is mainly contributed by the gold market business. Overall, the growth rate of China CITIC Bank's 2024Q2 non-interest income may still be under pressure. Furthermore, China CITIC Bank has stepped up its bad disposal efforts in recent years. The non-performing rate at the end of 2024Q1 remained low at 1.18%, and the margin of safety was high. Considering that the high dividend logic is still the main line in terms of capital, China CITIC Bank has maintained a dividend ratio of at least 28% in 2023 and has recently issued a proposed mid-term dividend announcement, further highlighting the investment value. We estimate that as of 2024-07-08, China CITIC Bank's latest dividend rate is 4.86%. If all convertible bonds are converted to shares, the dividend rate will be 4.65%, and the impact of stock conversion on the dividend rate is limited.

Risk warning: Macroeconomic growth is declining, regulatory policies are being tightened, corporate transformation falls short of expectations, etc.