Key points of investment

Societe Generale Bank's profit was +1% year-on-year, exceeding expectations. Credit investment bucked the trend and accelerated.

Overview of the data

Societe Generale Bank 24H1 net profit increased 0.9% year on year, up 4.0pc from 24Q1; revenue increased 1.8% year over year, and the growth rate was 2.4 pc narrower than 24Q1. Industrial Bank's non-performing rate at the end of 24Q2 increased slightly by 1 bp to 1.08% from the end of 24Q1, and the provision coverage rate decreased by 8 pc to 238% compared to the end of 24Q1.

Profits have returned to positive growth

Societe Generale Bank 24H1 net profit increased 0.9% year on year, up 4.0 pc from 24Q1; revenue increased 1.8% year over year, the growth rate was 2.4 pc narrower than 24Q1, and profit returned to positive growth, better than market expectations, mainly due to improvements in depreciation drag. Main driving factors: (1) Looking at interest spreads, Societe Generale Bank's net interest spread (early to end of period, same below) remained flat at 1.62% month-on-month, slightly improving the drag on profits. (2) Other non-interest. In 24Q2, Industrial Bank's other non-interest rate increased 8.7% year on year, and the growth rate decreased by 7.5 pc from month to month; (3) Looking at impairment, 24H1 Industrial Bank's impairment losses increased 10.2% year on year, and the growth rate dropped sharply by 36 pc from month to month.

Looking ahead, as depreciation accrual pressure stabilizes, compounded by high depreciation base support from the second half of last year, it is expected that Societe Generale Bank's profit will maintain positive growth throughout the year.

Outstanding credit investment

At the end of 24Q2, total loans surged 8.6% year on year, and the growth rate increased by 0.6 pc each month. Credit investment bucked the trend and accelerated. The performance was impressive, and the strategic layout in the fields of green finance and technology finance showed results. In 24H1, green loans and technology finance contributed 45% and 33% of the increase in loans (excluding tickets), respectively.

Interest spreads remained flat month-on-month

Societe Generale Bank's 24Q2 net interest spread remained flat at 1.62% month-on-month, due to improved debt costs and hedging the downward impact on asset returns. (1) Asset-side returns fell 13 bps to 3.73% month-on-month, mainly due to the downward impact of loan interest rates and market interest rates in the industry. (2) The debt-side cost ratio decreased by 10 bps to 2.15% month-on-month, mainly due to the release of dividends from deposit interest rate cuts and manual interest rate compensation management, compounded by the decline in market interest rates. Interest rates on 24H1 deposits and bonds issued by Societe Generale Bank decreased by 17 bps and 11 bps, respectively, compared to 23H2.

Defects fluctuate

Industrial Bank's defect rate and attention rate at the end of 24Q2 were +1bp and 3bp to 1.08% and 1.73% month-on-month, respectively. Defects fluctuated slightly. The main pressure points were real estate, urban investment, and retail.

(1) Real estate: At the end of 24H1, Industrial Bank's real estate non-performing asset ratio was 3.65%, up 62 bps from the beginning of the year. It mainly actively lowered the ratings of some projects to improve asset quality. (2) Urban Investment: At the end of 24H1, the non-performing asset ratio for businesses related to the financing platform of Industrial Bank was 3.00%, up 48 bps from the beginning of the year. It mainly actively reduced the size of the financing platform's business, while stock risks were exposed. (3) Retail: 24H1 retail overdue loans increased by 5.3 billion yuan, and retail risk increased, which is basically in line with industry trends. An improvement in credit card risk was observed. The credit card overdue rate at the end of 24H1 decreased by 23 bps to 6.52% from the beginning of the year, and the 24H1 acceptance rate decreased 13% year over year.

Profit forecasting and valuation

Industrial Bank's net profit is expected to increase by 0.40%/1.00%/6.66% year-on-year in 2024-2026, corresponding to BPS 36.81/39.33/42.08 yuan. The current price corresponds to 0.46/0.43/0.40 times PB. The target valuation is PB0.60x in 2024, corresponding to the target price of 22.08 yuan/share, with a current price space of 31%, maintaining the “buy” rating.

Risk warning: The macroeconomy has stalled, and bad effects have been greatly exposed.