Key points:

Revenue growth is slowing, and non-interest revenue contributions are weakening

Between 2024H1 and 2024Q1, the revenue of the Shanghai Agricultural Commercial Bank increased 0.23%/3.69% year on year, net profit to mother increased 0.62%/1.48% year on year, net interest income decreased by 2.61%/1.95% year on year, and non-interest net income increased 8.86%/20.98% year on year. The revenue growth rate slowed compared to the first quarter. The main reason was that interest income growth declined due to a slowdown in asset growth, while rate cuts and slowing investment income growth reduced the contribution of non-interest income. Compared with the first quarter, the strength of the provision schedule decreased, and net profit to mother maintained positive growth. Due to the decline in agency insurance commission rates in the fourth quarter of the previous year, revenue growth in the intermediary business was under pressure. The impact range of commission adjustments in the second half of the year gradually synchronized with the previous year over time, which is expected to increase the incremental contribution to revenue.

Retail credit expansion is slowing down, and deposits are growing steadily

Between 2024H1 and 2024Q1, the total assets of the Shanghai Agricultural Commercial Bank increased 7.02%/9.13% year on year, loans increased 5.65%/6.14% year on year, deposits increased 6.94%/6.16% year over year, and personal loans decreased 2.14%/2.69% from the beginning of the year. Early loan repayment factors still had some restrictions on the expansion of retail assets, and the expansion of public credit was relatively steady. The growth rate of deposits increased steadily in the second quarter, and the debt-side basis was relatively strong.

Debt cost savings expanded, and interest spreads stabilized in the second quarter

In the first half of the year, the net interest spread of the Shanghai Agricultural Commercial Bank was 1.56%, down 13 BP from the full year of the previous year. Interest spreads stabilized in the second quarter, mainly due to the cost savings effect after multiple rounds of deposit interest rate adjustments. The deposit cost ratio for the first half of the year was 1.83%, down 12 BP from the full year of the previous year. It is expected that with a new round of deposit interest rate adjustments in July, subsequent deposit costs will continue to fall, and the decline in interest spreads is expected to continue to narrow.

The quality of assets supporting public business was stable. The dividend rate increased to 33% 2024H1, and the non-performing loan ratio of the Shanghai Agricultural Commercial Bank was 0.97%, down 0.02% from the first quarter. The loan coverage rate also declined from the first quarter. The provision coverage rate was 372.42%, down 9.42% from the first quarter.

The non-performing ratio for public loans decreased by 0.07% from the end of the previous year, and the non-performing ratio for personal loans increased by 0.20% compared to the end of the previous year. The overall performance of asset quality is relatively stable. The core capital adequacy ratio of the Shanghai Agricultural Commercial Bank was 14.68%, which continued to rise from the end of the first quarter. Low risk appetite and refined capital measurement promoted capital savings, and capital continued to maintain an excellent level of capital. The mid-term dividend rate for 2024 is 33%, which is 3% higher than the previous year's dividend rate, making the dividend rate relatively higher and further meeting investors' return needs.

Investment advice

Affected by the market environment, personal loan growth momentum is insufficient, and asset scale expansion has slowed down. As deposit cost savings continue to unleash, the company's interest spreads are expected to continue to stabilize. Considering the comparative advantage of the company's business location, asset risk is manageable, the company's provisions and capital levels are still sufficient, and credit risk has room to be mitigated, which helps support subsequent performance recovery. According to the disclosure of the semi-annual report, the net profit growth rate from 2024 to 2026 was adjusted to 1.65%/3.62%/4.04%. The corresponding EPS was 1.32/1.38/1.44 yuan, respectively, and the PB corresponding to the current price was 0.54/0.51/0.47 times. Maintain the company's “gain” rating.

Risk warning

Economic recovery fell short of expectations, demand for credit weakened; asset quality fluctuated.