1H24 results are in line with our expectations

The company's 1H24 net profit/operating revenue/profit before provision was -2.0%/-6.0%/-8.2% year-on-year, in line with our expectations.

Development trends

Profit growth picked up slightly. The company's 1H24 net profit growth rate increased by 1 percentage point from the first quarter. The recovery in profit growth was mainly due to a 16.5% year-on-year decline in asset impairment losses, which fell 8.9ppt from the first quarter to feed back net profit. 1H24's revenue decreased by 2.6ppt compared to the first quarter. For details, see:

1) Net interest income in the first half of the year fell 6.8% year on year, down 2.7 ppt from the first quarter, mainly due to a slowdown in asset growth and a slight narrowing of interest spreads; 2) Net fee revenue fell 8.2% year over year, mainly due to a decline in financial management and escrow business revenue; 3) Other non-interest income increased 5.7% year on year, mainly due to increased income from fair value changes.

Credit growth in key areas continued to be high. 1H24 corporate credit/total assets increased 10.1%/7.9%, respectively, and decreased by 1.5pp/5.3ppt from the first quarter. In terms of key areas, loans invested in manufacturing, loans to strategic emerging industries, green loans, and inclusive loans increased by 13.0%, 14.7%, 13.7%, and 21.5% respectively from the beginning of the year, all higher than the average growth rate of various loans.

Debt cost pressure falls. 1H24's net interest spread was 1.43%, narrowing from the 5bp decline in the first quarter. Specifically, 1H24's return on interest-bearing assets was 3.28%, down 5 bps from the first quarter, and less than 12 bps in the first quarter; the interest-paying debt cost ratio fell 5 bps to 1.85% from 2023, mainly due to lower deposit listing interest rates and a drop in high-cost debt pressure. Looking ahead, the company lowered the deposit listing interest rate again in July, which is expected to further ease the pressure on interest spreads.

Mid-term dividends have been implemented, and the capital level is stable. 1H24's core Tier 1 capital adequacy ratio of 13.84% remained high, continuing to rise 6 bps from the end of the first quarter. At the company's earnings conference, it was stated that it plans to distribute interim dividends. The current dividend payment period is expected to be January 2025, with a cash dividend of 0.1,434 yuan per share. The corresponding cash dividend ratio is 30%, and the dividend level will remain stable. Based on the closing price on August 30, the annualized dividend ratio of the company's A shares and H shares is about 4.8%/6.4%, respectively, and the dividend perspective still has investment value. (continued on next page)

Profit forecasting and valuation

Keep profit forecasts unchanged. The current A share price corresponds to 2024/2025 0.6x/0.5x P/B, and the H share price corresponds to 2024/2025 0.4x/0.3x P/B. Maintain A shares outperform the industry rating and target price of $6.75, corresponding to 0.7x/0.6x P/B in 2024/2025, with 12.9% upside compared to the current share price; maintain H shares outperform the industry rating and target price of HK$5.52, corresponding to 0.5x/0.4x P/B in 2024/2025, with 23.0% upside compared to the current stock price.

risks

Macroeconomic uncertainty and the spread of risks in the real estate industry.