Description of the event

Changshu Bank released its 2024 semi-annual report. Revenue for the first half of 2024 grew 12.0% year on year (Q1 growth rate 12.0%), and net profit to mother grew 19.6% year on year (Q1 growth rate 19.8%) year on year. Among them, net interest income grew 6.1% year on year, bucking the trend, and investment income led to high growth in non-interest income. At the end of Q2, the defect rate remained flat at 0.76% month-on-month, and the provision coverage rate was basically flat at 539% month-on-month.

Incident comments

Revenue & profit grew rapidly, and net interest income bucked the trend. 2024H1 revenue increased 12.0% year over year, continuing high growth. Among them, net interest income increased 6.1% (Q1 growth rate was 5.6%), which bucked the trend and accelerated growth, mainly due to strong resilience in net interest spreads and good growth in the size of interest-bearing assets. Net non-interest income increased 56.6% year over year, mainly driven by investment income and other non-interest beneficiary bond markets. Net profit to the mother maintained rapid growth. The cost-revenue ratio decreased by 5.9 pcts year on year, continuing the improvement trend, driving PPOP to achieve a high growth rate of 23% year over year, and credit impairment losses and withdrawal amounts increased year over year. Due to strong revenue growth, profits were not released by reducing accrued credit impairment losses.

Loans grew steadily, and deposit structures improved. Total loans at the end of Q2 increased by 7.4%, with a quarter-on-quarter growth rate of 1.6%. Among them, public loans and retail loans grew 4.0% and 0.7% month-on-month, and note size fell 4.6%. Among personal loans, the core product, personal operating loans, increased 4.7% compared to the beginning of the period, and the size of other retail loans contracted due to demand. Total deposits at the end of Q2 increased by 14.0% compared to the beginning of the period, down 0.3% month-on-quarter, and the growth rate declined seasonally. In terms of deposit structure, the share of current deposits at the end of Q2 decreased by 1.8 pct to 18.5% month-on-month. However, the share of time deposits with a term of 3 years or more decreased by 1.7 pct to 38.0% compared to the beginning of the period. The deposit structure continued to be optimized, driving deposit interest rates to continue to improve.

The decline in net interest spreads was lower than that of peers, and debt costs improved markedly. The 2024H1 net interest spread is 2.79%, down 4BP from Q1 and 7BP from the full year of 2023. The expected decline is significantly lower than that of the interbank sector. The absolute level is currently significantly ahead of the industry. The yield on 2024H1 loans fell 4BP to 5.77% from the full year of 2023. Among them, the yield on personal loans rebounded 17BP to 6.90%, and the yield on public loans fell 19BP to 4.57%. The deposit cost ratio continues to improve, with the deposit cost ratio falling by 6BP to 2.22%. Among them, the cost rate for personal time deposits decreased by 19BP to 2.83%. It is expected that with the gradual maturity repricing of early high-priced time deposits and the optimization of deposit structures, deposit costs will continue to improve in the future, helping to continue to stabilize the net interest margin advantage.

Asset quality remains excellent, and strong write-offs maintain stable provisions. At the end of Q2, the defect rate remained industry-leading at 0.76%, and the 2024H1 net bad generation rate was 1.26%, up 35 BP from the full year of 2023. It is expected that the small and micro customer base will be affected by the external environment and asset quality will fluctuate. In terms of classification, the non-performing ratio of public loans continued to be excellent at the end of Q2. The non-performing ratio of personal loans increased by 13BP to 0.91% compared to the beginning of the period. Among them, the non-performing ratio of personal business loans increased by 13BP to 0.91%. In addition, the non-performing ratio of personal consumer loans and credit cards also increased. The provision coverage rate at the end of Q2 was 539%. The amount of write-off in the first half of the year increased markedly over the same period last year, and provision stability was maintained through increased write-off efforts. In a market environment where overall retail risk in the industry fluctuates this year, risk control capabilities and customer base quality are the keys to maintaining stable asset quality. We will continue to pay attention to changes in risk in the retail sector in the future.

Investment advice: Performance continues to grow at a high level, and long-term allocation value is outstanding. Changshu Bank continued to lead the performance growth rate in the first half of 2024. Net interest income bucked the trend and accelerated growth, the net interest margin advantage was stable, and asset quality remained excellent. Stock prices have recently been adjusted due to bond trading regulations, but the company's fundamentals continue to be excellent, the long-term development path is clear, and its core competitive advantage is still outstanding. Revenue for the full year of 2024 is expected to grow 10.9% year on year, and net profit to mother will grow 19.1% year on year, corresponding to a valuation of 0.73 x 2024PB. After adjustment, the current valuation is at a low level. Long-term focus is recommended, and the “buy” rating is maintained.

Risk warning

1. The credit scale expansion fell short of expectations; 2. Asset quality fluctuated markedly.