1H24 results are basically in line with our expectations

Minsheng Bank announced 1H24 results. The company's revenue for the first half of the year and net profit to mother decreased by 6.2% and 5.5%, respectively. Among them, 2Q24 revenue and net profit to mother decreased by 5.5% and 5.3% year-on-year respectively. The declines all narrowed, and the performance was basically in line with our expectations.

Development trends

The mid-term dividend plan was announced, with a dividend ratio of 29.9%. The company announced that it plans to distribute cash dividends of RMB 1.30 for every 10 shares in the middle of the 2024 fiscal year, totaling about 5.692 billion yuan, corresponding to a dividend ratio of 29.9%, which is basically the same as the 30% dividend rate at the end of 2023. We believe that the implementation of mid-term dividends will help improve the cash flow of some institutional investors and enhance investor confidence.

Net interest spreads stabilized and debt costs improved. The net interest spread on the company's average daily balance for the first half of the year was 1.38%, the same as in 1Q24. The debt side benefited from interest rate cuts such as manual interest reimbursement and rectification of retail periodic/public notice deposits. The company's 1H24 deposit costs and indebted debt costs were reduced by 7 bps, 5 bps to 2.24% and 2.38% respectively compared to 2023, with corporate deposit costs reduced by 10 bps to 2.23%. On the asset side, the return on 1H24 loans and interest-bearing assets decreased by 25 bps and 16 bps to 4.07% and 3.64% compared to 2023. At the scale level, companies were more cautious in expanding their tables. Total assets, loans, and deposits at the end of 1H24 decreased by 1.6%, increased by 0.9%, and decreased by 5.1%, respectively, compared to the beginning of the year.

The year-on-year decline in non-interest income narrowed. The company's non-interest revenue for the second quarter decreased by 3.0% year on year, and the decline was 5.2 pcts narrower than in the first quarter. Among them, 2Q24 net handling fee revenue decreased 7.9% year over year due to capital market shocks, but the decline narrowed by 5.7 pct month on month; 2Q24 other non-interest income increased 3.0% year on year, and the year-on-year growth rate changed from negative to positive.

The net generation rate of non-performing goods has been reduced, and the quality of assets is stable. We believe that, benefiting from a strong foundation in the company's risk management system and a cautious trend in adding new risk appetite, the company's net generation rate of 1H24 loans was 1.01%, which is 6 bps lower than the level of 1.07% in 2023. In terms of survival risk, at the end of 2Q24, the loan default rate and attention rate increased by 3 bps, 15 bps to 1.47%, and 2.78%, respectively, compared to 1Q24, and the loan overdue rate increased by 18 bps to 2.18% compared to the beginning of the year. In terms of risk offsetting capacity, the company's 2Q24 provision coverage rate remained flat month-on-month, with a slight decrease of 0.1 pct to 149.3% month-on-month.

Profit forecasting and valuation

Due to weak economic recovery and a slowdown in banking sector expansion, we cut the company's 2024E profit 6% to 35.5 billion yuan, and 2025E profit 8% to 37.2 billion yuan. The company's A shares were traded at 0.27x/0.26x2024E/2025E P/B. Considering changes in investors' risk appetite, we lowered the target price of A shares by 12% to $4.46, corresponding to 0.35x/0.34x 2024E/2025E P/B and 31% upside; the company's H shares traded at 0.20x/0.19x P/B, reducing the target price of H shares by 5% to HK$3.55, corresponding to 0.25x/0.24x 2024E/2025E P/B and 29% room for growth . Maintain an outperforming industry rating.

risks

The pressure to dispose of the continuing asset quality burden exceeded expectations, and macroeconomic recovery fell short of expectations.