Revenue and net profit declined year over year. The company achieved operating income of 420.5 billion yuan in the first half of 2024, a year-on-year decrease of 6.0%, an increase of 2.6 percentage points over the first quarter; in the first half of the year, net profit to mother was 170.5 billion yuan, a year-on-year decrease of 1.9%, and the decline was 0.9 percentage points narrower than in the first quarter. The weighted average return on net assets for the first half of the year was 9.5%, down 1.0 percentage point year on year. Judging from performance attributions, net interest spreads mainly dragged down net profit growth.

The growth rate of asset size has declined. At the end of the second quarter of 2024, total assets increased 7.9% year-on-year to 47.1 trillion yuan. The scale growth rate declined markedly from the previous double-digit growth rate. Among them, total loans increased 10.1% year over year, and deposits increased 2.2% year over year. The company's core Tier 1 capital adequacy ratio at the end of the second quarter was 13.84%, not much change from the beginning of the year.

Net interest spreads declined. The company disclosed an average daily net interest spread of 1.43% for the first half of the year, a year-on-year decrease of 29 bps. Affected by factors such as LPR and lower interest rates on stock mortgages, loan yields fell 43 bps year on year, and yield on interest-bearing assets fell 28 bps year over year; on the debt side, interest rates on deposit payments fell 6 bps year on year, but interest rates on non-deposit debt rose, and overall debt costs remained unchanged year over year. The net interest spread for the second quarter of this year was 1.38%, down 10 bps from the first quarter.

Net revenue from handling fees decreased year over year. The company's net revenue from handling fees decreased by 8.2% year-on-year in the first half of the year, mainly due to factors such as public fund rate reform, implementation of the “integrated reporting and banking” policy, capital market fluctuations, and changes in investors' risk appetite. Revenue from personal finance, private banking, public finance, and asset custody declined.

The quality of assets remains excellent. The company's defect rate at the end of the second quarter was 1.35%, which was basically the same as at the beginning of the year; the attention rate was 1.92%, up 7 bps from the beginning of the year; the bad generation rate in the first half of the year was 0.46%, down 6 bps from the previous year, continuing to maintain excellent asset quality. In terms of provision, the company's “loan loss preparation accrual/bad generation” was 158% in the first half of the year, with sufficient provision increases; provision coverage rate at the end of the second quarter was 218%, up 4 percentage points from the beginning of the year.

Investment advice: We keep our profit forecast unchanged. We expect net profit to be 366.5/375.5/392 billion yuan for 2024-2026, with a year-on-year growth rate of 0.7/2.5/ 4.4%; diluted EPS is 0.99/1.01/1.06 yuan; current stock prices correspond to PE 6.3/6.1/5.9x and PB is 0.61/0.57/0.53x, maintaining a “superior to market” rating.

Risk warning: The weakening macroeconomic situation may adversely affect the quality of bank assets.