2Q24 results are basically in line with our expectations

Changshu Bank announced 2Q24 results: 1H24 revenue increased 12.0% year on year, net profit to mother increased 19.6% year on year; 2Q24 single quarter revenue increased 12.1% year on year, and net profit to mother increased 19.3% year on year.

The results were largely in line with our expectations.

Development trends

The scale has maintained a relatively rapid growth rate. Changshu Bank's total assets, loans, and deposits increased 15.6%, 11.3%, and 17.0% year-on-year respectively at the end of 2Q24, and the scale continued to grow rapidly. At the end of 2Q24, loans to villages in the Changshu region, in Jiangsu Province outside Changshu City, and outside the province increased by 13.4%, 10.8%, and 8.6%, respectively; deposits increased 13.4%, 21.5%, and 21.6% year-on-year respectively, and offsite branches and village banks contributed greatly to the increase in deposits. By category, at the end of 2Q24, loans to public and personal loans increased 17.8% and 6.9%, respectively. Among personal loans, housing mortgages and credit cards decreased by 7.7% and 39.2% year over year, and personal operating loans and personal consumption loans increased 11.1% and 11.3% year over year.

The reduction in debt cost pressure partially mitigates the pressure on interest spreads. The average daily net interest spread for 1H24 was 2.79%, down 21 bps and 7 bps from year to month, respectively. We estimate that the net interest spread, return on interest-bearing assets, and interest-paying debt cost ratio for 2Q24 were 2.66%, 4.78%, and 2.24%, respectively. The year-on-year decrease was 19 bps, 28 bps, and 10 bps, and a quarter-on-quarter decrease of 10 bps, 13 bps, and 6 bps. The reduction in deposit costs has partly relieved the downward pressure on loan interest rates.

2Q24 Other non-interest income contributed 17.6% of revenue. 2Q24's other non-interest revenue was 0.494 billion yuan, up 43.4% year over year, accounting for 17.6% of revenue. The increase in other non-interest income mainly comes from investment returns. Investment income related to 1H24 disposal of financial assets was 0.68 billion yuan, accounting for 12.8% of revenue (5.5% and 4.7% in 2022 and 2023, respectively).

The cost-to-revenue ratio fell to 35.2%. 1H24 business and management expenses decreased by 3.9% year on year, mainly due to the 8.3% decrease in employee expenses. We estimate that the company's per capita salary decreased by 7.4% year on year.

There has been an increase in the net generation rate of defects. At the end of 2Q24, Changshu Bank's non-performing rate and attention rate were 0.76% and 1.36%, respectively. The non-performing rate was flat, and the attention rate increased by 12 bps; provision coverage rate at the end of 2Q24 was 538.8%, down 0.4ppt from month to month; the proportion of overdue loans at the end of 1H24 and loans overdue for 90 days or more was 1.54% and 0.63%, respectively, up 52 bps and 4 bps from the end of the previous year. The company has stepped up its write-off efforts. We estimate the net non-performing generation rate of 1.26% in 1H24, up 50 bps over the previous year. We expect it mainly comes from personal loans. The non-performing personal loan ratio at the end of 1H24 increased by 13 bps to 0.91% compared to the end of the previous year.

Profit forecasting and valuation

Keep profit forecasts unchanged. The current stock price corresponds to 0.7 times the 2024E net market ratio and 0.7 times the 2025E net market ratio. Maintaining an outperforming industry rating and excluding the impact of changes in share capital, we kept our target price unchanged at 7.85 yuan, which corresponds to 0.9 times the 2024E net market ratio and 0.8 times the 2025E net market ratio. There is 13.8% upward space compared to the current stock price.

risks

The decline in interest rates on newly issued loans exceeded expectations, and the weakening of asset quality exceeded expectations.