Introduction to this report:
Bank of Chengdu's performance in the first half of 2024 was in line with expectations. Revenue and net profit growth declined from 24Q1 mainly due to a higher 23Q2 base, and overall asset quality remained steady. The target price was lowered to 18.65 yuan, and the holding increase rating was maintained.
Key points of investment:
Investment advice: The Bank of Chengdu is located in a key area where major national strategies are superimposed. Credit demand is relatively strong, and the scale growth rate is ahead of peers. While consolidating the traditional advantages of government finance, the company actively develops physical business, retail consumer loans, and wealth management, with a long-term layout.
Considering the slowdown in future industry loan growth and the absence of an inflection point in interest spreads, the adjusted 2024-2026 net profit growth forecast is 13.0%, 14.1%, and 14.6%. The corresponding BVPS is 19.63 (-0.54), 22.49 (-1.20), 25.77 (new) yuan/share, and the target price was lowered to 18.65 yuan, corresponding to 0.95 times the 2024 valuation, maintaining an increase rating.
Under the 23Q2 high base (revenue +12.5%, net profit to mother +32.2%), 24Q2 revenue and profit growth was in line with expectations. 24Q2 revenue was +2.5% YoY, of which net interest income was -3.8% YoY. The scale maintained a high growth rate of nearly 25%, but the decline in interest spreads of 34 bps year-on-year under a high base was a drag. Compared to 24Q1, the net interest spread narrowed by 14 bps. Mainly due to weakening credit demand after a good start, combined with the removal of lower restrictions on mortgage interest rates, the return on the asset side fell by 20 bps in Q2. 24Q2 net transaction fee revenue and net other non-interest income increased by 43.1% and 23.4% respectively. The former mainly benefited from the rapid development of financial management business. At the end of June, the scale of financial management increased 23.6% year over year to 82.4 billion yuan, driving 24H1 wealth management revenue +58.5% year over year. On the cost side, 24Q2 credit impairment decreased 33% year over year, resulting in an 8.8% increase in net profit.
The growth rate of 24Q2 deposits and loans was slower than in Q1, but it still achieved higher growth rates of 14.6% and 22.8%. The public sector contributed 93.4% of the increase in loans in the first half of the year, of which the leasing and business services sector accounted for 74.4%; the balance of real estate loans declined, and the share of stocks fell to 5.2%. The continuation of the trend of deposit fixed-term deposits partially offset the impact of the reduction in listed interest rates. The 24H1 interest rate decreased by 5 bps to 2.21% compared to 23H2, and the reduction in retail deposit costs was greater than that of the public.
The defect rate remained flat at a low level of 0.66%, but the negative outlook index increased. The concern rate increased from q1+4bp to 0.45%, and the 24H1 bad generation rate increased by 13 bps to 0.29%. Looking at the distribution of defects, regionally, the non-performing rate was +16bp to 0.75% outside of Chengdu. The construction, wholesale and retail industries, and bad mortgage loans increased a lot in the industry. The company adheres to the principles of prudent risk management, and while increasing bad write-off, 24H1 loan impairment charges increased 2.5% year over year (less credit impairment depreciation mainly depreciated on financial investment, but the ratio of non-standard loans increased from 7.9% to 8.3%, and risk management was not relaxed). The provision coverage rate at the end of the period is 496%, and the safety pads are solid.
Risk warning: Structural risk exposure exceeds expectations, and insufficient core capital constrains development