Revenue was under pressure, and net profit decline improved marginally: 2024H1, the company achieved operating income of 401.999 billion yuan, down 6.03% year on year; net profit to mother was 170.467 billion yuan, down 1.89% year on year; weighted average ROE was 9.53%, down 0.98 percentage points year on year. The company's 2024Q2 revenue fell 8.75% year on year; net profit to mother fell 10.92% year on year, and the decline narrowed month-on-month. The company's net profit margin improved in the second quarter, and steady growth in asset size and credit cost optimization supported the quality and efficiency of operations.

Debt costs continued to be rigid, and credit investment grew steadily: 2024H1, the company's net interest income was 313.95 billion yuan, down 6.84% year on year; net interest spread was 1.43%, down 5 and 18 BP from the first quarter and the end of the previous year, respectively, mainly affected by LPR cuts, repricing, and deposit regularization. 2024H1's return on interest-bearing assets was 3.28%, down 17BP from the end of the previous year, and the cost ratio of interest-paying debt was 2.04%, the same as at the end of the previous year. Among them, the loan yield and deposit cost ratio were 3.52% and 1.84% respectively, down 29 and 5 BP from the end of the previous year, respectively. As of the end of June, various loans increased by 6.71% compared to the end of the previous year, mainly driven by loans to the public. Public loans increased 8.49% from the end of the previous year, while manufacturing, strategic emerging industries, green and inclusive loans increased by 13%, 14.7%, 13.7%, and 21.5%, respectively, from the end of the previous year. Retail loans increased 2.09% from the end of the previous year, while consumer and operating loans increased by 17.39% and 16.67% respectively from the end of the previous year, and mortgage loans decreased 1.96% from the end of the previous year. At the end of June, various deposits increased 1.7% compared to the end of the previous year. Among them, corporate deposits decreased by 2% compared to the end of the previous year, which may be affected by the cessation of “manual interest compensation”; personal deposits increased 5.8% from the end of the previous year.

Revenue was dragged down, and the scale of wealth management remained leading: 2024H1, the company achieved non-interest income of 106.549 billion yuan, down 3.58% year on year, and intermediate revenue was still under pressure. In the first half of the year, the company achieved revenue of 67.405 billion yuan, a year-on-year decrease of 8.25%. Among them, revenue from settlement and investment banking businesses increased 7.23% and 8.47% year on year, respectively; affected by falling fund insurance rates and capital market fluctuations, personal finance and private banking business revenue fell 26.66% year on year. The company's wealth management scale remained industry-leading. At the end of June, retail AUM reached 21.77 sales, an increase of 5.12% over the end of the previous year. The company's other non-interest income was 39.144 billion yuan, up 5.67% year on year. Among them, investment income was 21.635 billion yuan, down 8.35% year on year, and profit and loss from fair value change was 8.399 billion yuan, up 72.39% year on year.

Asset quality is generally stable, poor retail sales have increased, and provision plans have increased risk resilience:

As of the end of June 2024, the company's non-performing loan ratio was 1.35%, down 1BP from the first quarter and the end of the previous year; the share of concerned loans was 1.92%, up 7BP from the end of the previous year. Among them, the non-performing ratio for public loans was 1.69%, down 12 BP from the end of the previous year, and the non-performing rate in all industries decreased; the retail loan non-performing ratio was 10.9%, up 20 BP from the end of the previous year. At the end of June, the company's provision coverage rate was 218.43%, up 2.12 and 4.46 percentage points from the first quarter and the end of the previous year, respectively. The quality of the company's assets is stable, and its ability to withstand risks has been further improved.

Investment advice: The company is one of the major state-owned banks, leading the industry in scale and market share, diversified business structure, and strong comprehensive management resilience. As the main business, credit investment has been steadily expanded, structural transformation and upgrading, “GBC+” reforms have been promoted, and high-quality development capabilities have been enhanced. Asset quality is stable, risk resistance is improved, and capital is sufficient and stable. Interim dividends have been implemented for the first time. The dividend rate is stable and high, and shareholder returns are sustainable for a long time. Combining the company's fundamentals and stock price flexibility, we were given a “recommended” rating for the first time. In 2024-2026, BVPS was 10.18 yuan/10.91 yuan/11.68 yuan, corresponding to the current stock price PB0.59X/0.55X/0.51X.

Risk warning: Risk of deteriorating asset quality due to lower economic growth than expected; risk of pressure on NIM due to continued decline in interest rates; risk of table expansion and a slowdown in revenue growth due to weakening of scale orientation.