Revenue and net profit declined slightly. The company achieved operating income of 176.8 billion yuan in the first half of 2024, down 0.1% year on year. The growth rate fell slightly by 1.5 percentage points from the first quarter; net profit to mother was 48.8 billion yuan in the first half of the year, down 1.5% year on year, and the growth rate did not change much from the first quarter. The weighted average return on net assets for the first half of the year was 11.4%, down 1.4 percentage points year over year. Judging from performance attributions, net profit growth is mainly due to a year-on-year decline in net interest spreads and an increase in the cost-revenue ratio.

Asset size is growing steadily. At the end of the second quarter of 2024, total assets increased 8.5% year-on-year to 16.4 trillion yuan, which is basically close to the overall level of major banks, and the scale growth is relatively steady. Among them, total loans increased 10.4% year over year, and deposits increased 11.8% year over year. The company's core Tier 1 capital adequacy ratio at the end of the second quarter was 9.28%, down 0.25 percentage points from the beginning of the year.

Net interest spreads remained stable month-on-month. The company disclosed an average daily net interest spread of 1.91% for the first half of the year, a year-on-year decrease of 17 bps.

Affected by factors such as LPR and lower interest rates on stock mortgages, loan yields fell 35 bps year on year, and yield on interest-bearing assets fell 23 bps year over year; the company actively optimized deposit structures, strengthened the control of high-cost deposits, and both deposit interest rates and overall debt costs were reduced by 6 bps year on year. The decline in the company's net interest spread was mainly affected by factors leading to the decline in net interest spreads in the second half of last year. Among them, the net interest spread for a single quarter was 1.90% in the second quarter of this year, which remained stable for three consecutive quarters.

Net revenue from processing fees decreased year over year. The company's net revenue from handling fees decreased by 16.7% year-on-year in the first half of the year, mainly due to the impact of the “integration of reporting and banking” policy and a decrease in agency insurance business revenue. The company's income from other fees, such as investment banking business fees and financial management business fees, achieved relatively good growth.

The cost-to-revenue ratio has increased. The company's cost-revenue ratio in the first half of the year was 59.9%, an increase of 2.6 percentage points over the previous year, mainly due to the increase in the amount of deposits absorbed by postal agency outlets from individual customers.

The quality of assets is still excellent. The company's defect rate at the end of the second quarter was 0.84%, which was basically the same as at the beginning of the year; the concern rate was 0.81%, up 14 bps from the beginning of the year; the bad generation rate in the first half of the year was 0.37%. Despite a year-on-year increase of 8 bps, it was still lower than the overall level of the industry, and asset quality remained at a relatively excellent level. In terms of provision, the company's “loan loss preparation accrual/bad generation” for the first half of the year was 105%, and the provision account was fully increased. The company's provision coverage rate at the end of the second quarter was 487%, down 22 percentage points from the beginning of the year, and basically the same as in the first quarter.

Investment advice: We keep our profit forecast unchanged. We expect the company's net profit to be 86.7/90.5/94.7 billion yuan in 2024-2026, with a year-on-year growth rate of 0.5/4.4/ 4.6%; diluted EPS is 0.82/0.86/0.90 yuan; PE corresponding to the current stock price is 6.0/5.7/5.4x, and PB is 0.58/0.54/0.51x, maintaining the “superior to the market” rating.

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