1H24 results fall short of our expectations

Guiyang Bank's 1H24 revenue, profit before provision, and net profit to mother were -4.0%, -5.0%, and -7.1%, respectively. 2Q24 single-quarter revenue, profit before provision, and net profit to mother were -5.4%, -6.4%, and -11.5%, respectively. The performance fell short of our expectations, mainly due to the fact that provisions were higher than expected.

Development trends

Asset size declined quarter-on-quarter, and loans continued to grow. The company's total assets, loans and deposits increased by 6.6%, 8.8%, and 5.8% year-on-year respectively at the end of 2Q24, with quarter-on-quarter changes of -1.4%, +2.8%, and +1.2%.

1H24 added a net increase of 15.52 billion yuan to the size of public loans and a net decrease of 0.16 billion yuan in the size of retail loans. Among retail loans, personal business loans declined significantly. 1H24 added 18.82 billion yuan in deposits, including demand deposits decreased by 3.38 billion yuan, time deposits increased by 16.09 billion yuan, and other deposits increased by 6.11 billion yuan.

The size of interbank debt and bonds payable decreased quarterly, and the debt cost ratio declined. The average daily net interest spread of 1H24 was 1.81%, a year-on-year decrease of 37 bps. We estimate that the company's net interest spread, return on interest-bearing assets, and debt cost ratios for the 2Q24 quarter were 1.90%, 4.45%, and 2.42%, respectively, with quarter-on-quarter changes of +6 bps, 0 bps, and -16 bps. The amount of debt sold, repurchased and issued bonds both declined from the end of the first quarter. Net interest income in 2Q24 fell 15% year over year due to declining interest spreads and a slowdown in scale growth.

2Q24 non-interest revenue increased 58% year over year, with net handling fee revenue decreased 21% year over year, and other non-interest income increased 69% year over year. In 2Q24, investment income and fair value change income increased 72% and 249%, respectively, from other non-interest income, accounting for 15% and 5% of revenue, respectively.

Bad generation remained low, and the share of overdue loans increased. The company's defect rate and attention rate at the end of 2Q24 were 1.62% and 3.45%, respectively, down 1 bps and 37 bps; we estimated that the company's 1H24 net defect generation rate was 0.59%, down 6 bps year on year; the proportion of overdue loans and loans overdue for 90 days or more at the end of 1H24 was 2.97% and 1.54%, respectively, up 45 bps and 54 bps from the end of the previous year. Asset impairment losses increased 3.1% year-on-year in 2Q24, and the company increased write-offs. The provision coverage rate at the end of 2Q24 was 257.8%, up 10.5ppt from month to month.

Profit forecasting and valuation

The 2024E and 2025E profit forecasts were lowered by 3.9% and 6.5% to 5.189 billion yuan and 4.908 billion yuan as the company's provisions were higher than our expectations. The current stock price corresponds to 0.3 times the 2024E net market ratio and 0.3 times the 2025E net market ratio. Maintaining a neutral rating, since the company's interest spreads and asset quality are still under pressure, we lowered our target price by 8.3% to 5.43 yuan, which corresponds to 0.3 times the 2024E net market ratio and 0.3 times the 2025E net market ratio. There is 7.8% upward space compared to the current stock price.

risks

Asset risk fell short of expectations, and regional credit demand fell short of expectations.