Agricultural Bank's revenue for the first half of 2024 increased +0.2% year on year (-1.9% in 1Q24), and the growth rate recovered; net profit increased 2.0% year on year (-1.6% in 1Q24), and the growth rate increased marginally. Specifically, net interest income increased +0.1% year over year (-0.7% in 1Q24), mainly due to stabilizing interest spreads. Non-interest income was +0.6% year-on-year (-5.8% in 1Q24), the year-on-year decline in handling fees slowed, and support from other non-interest sources increased markedly. Affected by poor demand for residents' wealth management allocation and industry fee cuts and concessions, handling fees continued to grow negatively. In the first half of the year, the year-on-year trend was -7.9% (-10.8% in 1Q24), and other non-interest income was +20.8% (11.2% in 1Q24). In terms of profit, net profit to mother increased 2.0% year-on-year in the first half of the year (-1.6% in 1Q24). The marked increase in the marginal growth rate was mainly due to a recovery in revenue growth and a decline in the growth rate of management expenses.

Interest spread and net interest income: 2Q24 net interest income was +1.2% month-on-month, estimated that the annualized interest spread declined by 2 bp to 1.41% month-on-month; the cumulative average daily net interest spread for the first half of the year was up 1 bp to 1.45% compared to 1Q24, the asset-side yield decreased by 11 bps to 3.08%, and the debt-side interest rate decreased by 10 bps to 1.83% month-on-month.

Asset and liability growth rate and structure: The growth rate of both deposits and loans is slowing down. Asset side: To the public, it led to a decline in overall credit growth. 2Q24 credit increased by 526.48 billion in a single quarter, a year-on-year decrease of 83.079 billion. Among them, public relations increased by 148.333 billion, a year-on-year decrease of 363.337 billion; retail sales increased by 49.382 billion, a year-on-year decrease of 24.231 billion; and notes increased by 337.637 billion, an increase of 245.794 billion over the previous year. In the second quarter, the Agricultural Bank's credit growth in both the public and retail sectors was weak, and on this basis, it strengthened its investment in notes accordingly. Structurally, manufacturing, infrastructure, and personal operating loans formed the main sources of credit growth in the first half of the year. Debt side: The deposit growth rate declined significantly in the context of prohibiting manual interest payments. 1. Deposits: Second-quarter deposits decreased 5.3% month-on-month, single-quarter deposits decreased by 1.6 trillion yuan, a year-on-year decrease of 2.2 trillion yuan; the share of deposits in interest-bearing debt decreased 3.6 percentage points to 76.6% compared to the end of the first quarter.

In terms of term, the trend of deposit regularization continued, with demand deposits falling 1.46 points to 30.59%; from a customer perspective, the growth rate of savings deposits declined but remained high, falling 4.3% year on year, accounting for 1.79 percentage points down 1.79 percentage points to 41.12% from the beginning of the year; corporate deposits decreased by 1.7% year on year, accounting for 1.24 percentage points down from the beginning of the year to 36.06%.

Non-interest income: The pressure on handling fees has improved slightly, and other non-interest support has increased marginally. Net non-interest income increased 0.6% year over year (VS 1Q24 -5.8% year over year), net handling fee revenue -7.9% (VS 1Q24 -10.8% year over year), and net other non-interest income increased 20.8% year over year (VS 1Q24 +11.2% year over year).

Asset quality: The non-performing rate is stable, and the attention rate has increased. The company's defect rate at the end of 1H24 was 1.32%, the same as the month-on-month period at the end of the first quarter. The net annualized negative generation in a single quarter was 0.55%, an increase of 5 bps over the previous quarter. The share of concerned loans was 1.42%, the same as at the beginning of the year. The overdue rate was 1.07%, down 1 bp from the beginning of the year; overdue for 90 days or more accounted for a poor share of 52.31%, up 7.9 points from the beginning of the year. The provision coverage rate was 303.94%, up 0.72 percentage points from the previous month; the loan ratio was 4.0%, down 2 bps from the previous month.

Investment advice: Company 2024E, 2025E, 2026E PB 0.64X/ 0.59X/ 0.55X. Agricultural Bank fundamentals are generally stable, valuations are cheap, dividend ratio is high, profitability is excellent, stock risk is constantly being cleared, and asset quality is steady and improving. It is recommended that active attention be paid. Maintain an “Overweight” rating.

Risk warning: The economic downturn exceeded expectations, and the company's operations fell short of expectations.