Incidents:

On August 28, China CITIC Bank released its 2024 semi-annual report, achieving operating income of 109 billion, a year-on-year increase of 2.7%, and net profit to mother of 35.5 billion yuan, a year-on-year decrease of 1.6%. The annualized weighted average return on net assets was 10.69%, a year-on-year decrease of 1.46pct.

Comment:

Under the two-wheel drive of “stabilizing interest spreads” and “expanding revenue”, revenue increased 2.7% year over year. The year-on-year growth rates of the company's revenue, profit before provision, and net profit to mother in the first half of the year were 2.7%, 1.4%, and -1.6%, respectively. The growth rates decreased by 2, 4.2, and 1.8 pcts respectively from 1Q. Among them, the year-on-year growth rates of net interest income and non-interest income were -0.8% and 10.4%, respectively, with changes of 3.7 and -17.2 pcts from 1Q, respectively. The year-on-year profit growth structure was split, with non-interest and scale expansion as the main contributors, driving performance growth rates of 8.4 and 9.5 pct, respectively. Judging from marginal changes, 1) the recovery in performance growth mainly benefits from: the positive contribution of scale remained generally flat, the negative drag on net interest spreads narrowed, and provisions changed from negative drag to a slight positive contribution; 2) The main performance drag items include: the narrowing of the positive contribution of non-interest income, the widening of negative operating expenses, and the shift in income tax from positive contribution to negative drag.

The rate of table expansion has remained stable, and credit investment in key areas has continued to be increased. By the end of 2Q, the year-on-year growth rates of China CITIC Bank's interest-bearing assets and loans were 3.7% and 4%, respectively. The growth rates decreased slightly by 0.1 and 0.5 pct, respectively, from the end of 1Q. The increase in the size of loans, financial investment, and interbank assets in a single quarter in 2Q was 11.4 billion, -54.3 billion, and 17.5 billion, respectively, a year-on-year decrease of 22.8 billion, 62.2 billion, and an increase of 79.5 billion, respectively. By the end of 2Q, loans accounted for a slight increase of 0.3 pct to 67.3% compared to the end of the previous quarter. Looking at the incremental structure of loans, the increase in the 2Q single quarter was 13, 19.2, and -20.9 billion, respectively. Retail sales increased the most, the pressure on relatively low-income note assets dropped, and the credit structure was optimized. Among them, (1) loans to key sectors of the public sector maintained high growth, with loan balances in key areas of the real economy such as green loans, medium- and long-term manufacturing, private enterprises, and inclusive small and micro enterprises increased 15.3%, 8.2%, 5.4% and 6.7% respectively from the beginning of the year; (2) retail credit continued to have good development potential, and the company continued to increase its penetration into the high-quality target customer base of retail credit. Retail loans (excluding credit cards) increased by 58.1 billion in the first half of the year, an increase of 3.4%; among them, personal housing mortgages, personal inclusion, and consumer loans increased by 17.3, respectively. 24.4, 12.9 billion

The increase in deposits in the first half of the year was mainly contributed by retail sales, and the deposit regularization trend improved sequentially. China CITIC Bank's interest-paying debt decreased by 58.7 billion in the first half of the year, mainly due to pressure control of interbank debt; judging from the new interest-paying debt structure, the increase in deposits, bonds payable, and interbank debt in the 2Q single quarter was 97.8 billion, -18.5 billion, and -104.8 billion, respectively. Among them, deposit growth remained roughly the same year on year, and deposit balance at the end of 24Q2 increased by 2.2% compared to the beginning of the year. Further examining the deposit structure, retail and public deposit increases in the first half of the year were 100.9 billion and 15.8 billion, respectively. At the end of 24Q2, China CITIC Bank retail deposits and public deposits grew by 8% and -3.3% respectively. In terms of term structure, China CITIC Bank's fixed term and demand deposits increased by 32.4 billion and 84.3 billion yuan respectively in the first half of the year. As of the end of 24Q2, time deposits accounted for 52.6%, a slight decrease of 0.6 pct from the beginning of the year.

Interest spreads in the first half of the year recorded 1.77%, up 7 bps from 1Q. China CITIC Bank's 24H1 interest spread disclosure value was 1.77%, up 7 bps from 1Q. On the asset side, the yield on interest-bearing assets and loans in the first half of the year was 3.83% and 4.35% respectively, down 12 and 21 bps from 2023, respectively. Affected by factors such as lower stock mortgage interest rates, rolling repricing of stock loans, weak demand, and lower interest rates for newly issued loans, loan pricing is still on a downward channel; on the debt side, interest payment liabilities and deposit cost ratios for the first half of the year were 2.12% and 1.98%, respectively, down 8 bps and 14 bps, respectively. “Manual deposit and replacement cost ratios were gradually showing results. The “interest” rectification made The cost of public deposits has declined markedly. The early and final method estimates the company's 24H1 interest spread at 1.75%, up 7 bps from 1Q.

Among them, the estimated return on interest-bearing assets and the cost ratio of interest-paying debt were 3.77% and 2.08%, respectively, down 1 bps and 8 bps from the 1Q year, respectively. Interest spreads improved month-on-month, and the main benefit was the decline in debt costs.

In July, the China Stock Bank lowered the listing interest rate again, cutting the current interest rate by 5 bps, the notice and agreement cutting by 10 bps, and the reduction of time deposits for each term ranged from 10-20 bps. The cost improvement dividends will be further released in the future.

Non-interest income increased 10.4% year over year, and the share of non-interest income increased by 2.3 pct to 33.4% compared with the same period last year. China CITIC Bank's non-interest revenue in the first half of the year grew 10.4% year-on-year, down 17.2 pcts from 1Q. Among them, (1) net processing fees and commission revenue fell 14.2% year on year to 16.4 billion, which was 12.2 pct wider than 1Q. Fee revenue continued to grow negatively, mainly affected by factors such as capital market fluctuations, “integrated reporting” of banking insurance channels, and changes in residents' risk preferences. Agency fees (YoY -26.8%), escrow and other fiduciary business commissions (YoY -24.4%) declined significantly. Settlement and settlement fees, guarantee and consulting fees showed positive year-on-year growth; (2) net non-interest income showed positive year-on-year growth. 44.3% to 20.1 billion, down 24.3 pcts from 1Q.

In terms of net other non-interest income, the total profit and loss from changes in fair value was 19.2 billion yuan, an increase of 6.3 billion yuan over the previous year. The main thing is that the company grasped the bond market situation in a timely manner, increased transaction flow efficiency, and achieved relatively good growth in investment business income.

Defect rate and provision coverage rate remain “stable”. As of the end of 24Q2, China CITIC Bank's non-performing loan ratio was 1.19%, up slightly by 1 bps from the end of 1Q and the beginning of the year. Among them, the non-performing ratio for public loans (excluding bill discounts) was 1.25%, down 12 bps from the beginning of the year; and the retail loan non-performing ratio was 1.3%, up 9 bps from the beginning of the year. As of the end of 24Q2, the focus was on the loan ratio of 1.62%, a slight increase of 2 bps compared to the end of 1Q. The company disposed of non-performing assets of 40.4 billion in the first half of the year, an increase of 0.8 billion over the previous year. At the same time, by strengthening the clearance of write-off assets, the ability to manage problematic assets continues to improve. In 2023, 16.5 billion yuan was cleared (an average of 13 billion in the past few years), and the 24H1 settlement reached 7.1 billion.

In terms of provision, the company accrued credit and other impairment losses of 34.4 billion in the first half of the year. The accrual strength was roughly the same year on year, with a slight decrease of 0.8%; credit impairment loss/operating income was 31.6%, down 0.3 pct from 1Q. By the end of 24Q2, the provision coverage rate was 206.8%, a slight decrease of 1 pct from the end of 1Q, the loan ratio was 2.46%, and an increase of 2 bps from the end of 1Q.

The growth rate of RWA has been rising steadily, and capital adequacy ratios at all levels have mixed ups and downs. At the end of 24Q2, the company's core level 1, level 1, and capital adequacy ratios were 9.43%, 11.57%, and 13.69%, respectively, changing -26, 13, and 8 bps from the end of 1Q.

At the end of 24Q2, the RWA growth rate increased by 2.9 pct to 6.1% compared to the end of 1Q. The steady growth rate of RWA was influenced by factors such as rising and compounded dividends, and the core tier 1 capital adequacy ratio declined sequentially.

Profit forecasting, valuation and ratings. Driven by the two wheels of “stabilizing interest spreads” and “expanding income”, China CITIC Bank's revenue achieved a positive year-on-year increase in the first half of the year, reflecting strong fundamental resilience. According to the mid-term dividend plan, a dividend of 1,847 yuan (tax included) will be distributed for every 10 shares, totaling about 9.87 billion yuan, with a dividend ratio of 29.2%, which is an increase compared to the 26% dividend rate in 2023. Increasing mid-term dividend arrangements will help improve investment stability. The company's stock price currently has dividend rates of 5.3%/7.9% for A/H shares, respectively, which have good “high dividend” characteristics and valuation appeal.

Maintaining the company's 2024-2026 EPS forecast of 1.29/1.34/1.39 yuan, the current stock price is 0.48/0.45/0.41 times the corresponding PB valuation, respectively, maintaining the “gain” rating.

Risk warning: If the macroeconomic downturn exceeds expectations, it may increase the potential risk of exposure to large amounts of risk.