Matters:

On the evening of August 28, China CITIC Bank disclosed its 2024 semi-annual performance report. In the first half of the year, the company achieved operating income of 109.019 billion yuan, up 2.68% year on year, down 2 pct from 1Q24; operating profit of 43.686 billion yuan, up 3.19% year on year, up 5.8 pct year on year from 1Q24; net profit attributable to shareholders of listed companies was 35.49 billion yuan, down 1.85 pcts year on year from 1Q24. The defect rate increased slightly by 1 bp to 1.19% month-on-month, and the provision coverage rate decreased slightly by 1 pct to 206.8% month-on-month.

Commentary:

The slowdown in scale and the downturn in revenue are dragging down revenue growth, while rising costs are dragging down the growth rate of mother's net profit to negative. 1) 2Q24's single-quarter revenue increased 0.8% year over year, and the growth rate fell 3.9 pct month-on-month, mainly affected by the slowdown in scale growth in the second quarter (loan growth rate fell 0.5 pct to 3.97% month-on-month) and the decline in mid-term income (2Q24 mid-quarter revenue -24.2% YoY, growth rate decreased 22.2 pct month-on-month). However, net interest spreads rebounded steadily, supporting a positive increase in revenue growth. The net interest spread for the 2Q24 quarter (initial and final caliber) rose 13 bps to 1.81% month-on-month; 2) Net profit to mother in the first half of the year was -1.6%, down 1.85 pct from 1Q24, mainly due to rising business costs. 2Q24 cost revenue increased 0.67 pct to 27.66% compared to 1Q24.

Demand for credit has weakened, the structure has been actively adjusted to reduce notes, and the growth rate of credit scale has slowed down. At the end of Q2, interest-bearing assets increased by 3.35% year on year, and the growth rate increased by 0.6 pct month-on-month, mainly due to increased storage efforts in the same industry.

Due to weakening credit demand, total loans increased by 3.97% year on year, and the growth rate decreased by 0.5 pct month-on-month. Among them, new loans in Q1 and Q2 were 83.97 and -11.36 billion yuan, respectively. Looking at the loan structure, corporate loans/retail loans/bill discounts increased by 6.5%, 5.3%, and -19%, respectively. Among them, personal mortgage loans grew better than peers. At the end of Q2, personal mortgage loans increased 3.72% year on year, up 0.9 pct from the beginning of the year.

Net interest spreads in a single quarter exceeded expectations and rebounded steadily, mainly due to asset-side structural optimization, and the debt-side cost pressure reduction achieved remarkable results. The 2Q24 net interest spread (initial and final caliber) increased by 13 bps to 1.81% month-on-month, and the recovery increased compared to 1Q24. Judging from the average daily balance disclosed by the company, the 1H24 net interest spread rose 7 bps to 1.77% compared to 1Q24. 1) Asset side: Mainly asset-side structural optimization. On the one hand, it is note assets that reduce interest rates, and on the other hand, it increases investment in relatively high-yield interbank assets. The share of interbank assets increased by 11 bps to 5.1% month-on-month. The yield on 1H24 loans fell 21bps to 4.35% from the end of 23, with interest rates on public/retail loans falling 21 bps, 32 bps to 4.22% and 5.02%, respectively, from the end of 23. The return on interbank assets, on the other hand, rose 23 bps to 3.13% at the end of 23. After offsetting the two, the 2Q24 yield on interest-bearing assets fell only 2 bps to 3.76% month-on-month; 2) On the debt side: stopping manual interest payments and lowering deposit listing interest rates all contributed to the reduction in deposit cost pressure. The cost rate for 1H24 deposits fell 23 bps to 1.98% from the end of the year. The 2q24 interest-bearing debt cost ratio fell 15 bps to 2.01% month-on-month, and there is still room for further pressure drop.

Asset quality remained stable, and the non-performing rate rose slightly by 1bp to 1.19% month-on-month, mainly due to increased retail risk. The net bad generation rate and attention rate in a single quarter increased by 11 bps, 2 bps to 1.26%, and 1.62%, respectively, or due to slight pressure on some residents' ability to repay, the bad rate for public/retail loans was -13 bp/+9 bp month-on-month to 1.25%/1.30%, respectively. In response, the company increased its non-performing loan write-off and provision accrual efforts, and impairment losses on 1H24 accrued loans and advances increased 8.86% year-on-year. Due to the reduction in the calculation of non-loan impairment losses, provision coverage fell slightly by 1 pct to 206.8% month-on-month. The overall quality of assets remains stable.

Investment advice: China CITIC Bank's revenue continued to grow positively in the second quarter. Net interest spreads rebounded steadily, asset quality remained stable, and the medium-term dividend rate reached 29.2%. Subsequent cost drag factors may improve, and full-year results are expected to resume positive growth. China CITIC Bank relies on the Group's comprehensive endowment advantage of “financial+industry” to create the three core competencies of “wealth management, asset management, and comprehensive financing”, with remarkable results. Based on the latest financial report and the current macroeconomic environment, we adjusted the forecast. The company's 2024-2026 revenue growth rate is 0.52%/2.16%/3.41% (previous value -2.47%/2.01%/3.36%), and the 2024-2026 net profit growth rate is 1.37%/2.86%/3.79% (previous value 3.96%/3.22%/5.12%). The mid-term dividend is $0.1,847 per share (tax included), and the dividend rate is as high as 29.2%. If the current dividend rate is maintained at the end of the year, the dividend rate can reach 5.5% based on the closing price on August 28, which still has good investment value. The current valuation is only 0.5x24PB. We maintain a 24-year target PB of 0.6X and a corresponding target price of 7.64 yuan, maintaining a “recommended” rating.

Risk warning: Bank interest spreads are under further pressure due to insufficient economic growth momentum. Bank credit investment fell short of expectations.