We learned from the Wallstreetcn app that Minsheng Securities released a research report stating that the overall revenue of the banking sector is still under pressure, but the growth rate of net income attributable to the parent company has returned to positive. The performance pressure mainly arises from insufficient effective credit demand, downward loan pricing, lower fees for the sale of wealth management funds in the middle-income segment, and adjustments to the fees of the bank-insurance channels. The above-mentioned pressure continues in the second half of 2024, but on one hand, the gradual release of the benefits of the reduction in the benchmark deposit interest rates and on the other hand, the adjustments to the fees of the bank-insurance channels and the mortgage loan interest rates will have an effect from the second half of 2023. Therefore, although the revenue in the second half of 2024 is still under pressure, the growth rate is expected to stabilize and rise gradually quarter by quarter. At the same time, in the context of the gradual exposure and clearance of real estate risks, the significant fluctuations in bank asset quality have eased concerns, and the valuation of the banking sector is expected to further improve.

Overall for the sector: revenue is still under pressure, and the growth rate of net income attributable to the parent company has returned to positive. Looking at the overall picture of the 42 listed banks (hereinafter referred to as the 42-caliber banks), the cumulative revenue, pre-provision profit, and net income attributable to the parent company in the first half of 2024 decreased by 2.0%, 3.2%, and +0.4% year-on-year, respectively. The revenue and pre-provision profit decreased by 0.2 percentage points compared to the first quarter of 2024, and the growth rate of net income attributable to the parent company changed from negative to positive, up 1.0 percentage point from the end of the first quarter of 2024. Specifically, 1) Net interest income and middle-income continue to be under pressure in the first half of 2024, and other non-interest income has a higher growth rate against the background of the bond market. 2) In terms of quantity and price, the credit expansion speed in the first half of 2024 slowed down compared to the first quarter of 2024, and the interest spread continued to narrow, but it can be seen that the cost of deposits has improved significantly compared to 2023. 3) In terms of asset quality, the non-performing loan ratio of the 42-caliber banks in the first half of 2024 remained stable with a slight decrease, and the provision coverage ratio marginally improved.

Group comparison: The performance growth rate of city commercial banks and rural commercial banks is still relatively high, and the net profit growth rate of state-owned commercial banks is marginally warming up. The growth rate of non-interest income of state-owned large banks in the first half of 2024 has marginally increased year-on-year, but the decrease in net interest income and middle-income has expanded. The lower impairment losses have contributed to the profit; supported by other non-interest income, the growth rate of revenue for commercial banks narrowed in the first half of 2024, and the growth rate of net income attributable to the parent company returned to positive. For city commercial banks, the marginal decrease in the growth rate of net interest income and middle-income and the marginal decline in the growth rate of other non-interest income led to a slight decrease in the growth rate of revenue. The growth rate of revenue in the first half of 2024 marginally lowered. The growth rate of net interest income and middle-income in the first half of 2024 continued to be negative, and the growth rate of other non-interest income marginally slowed down, but the growth rate of impairment losses decreased significantly compared to the first quarter of 2024, and the growth rate of net income attributable to the parent company marginally increased.

Stock performance - The "highest" year-on-year revenue growth rates in the first half of 2024 are: Ruifeng Bank +14.9%, Changshu Bank +12.0%, Bank of Qingdao +12.0%, Jiangsu Suzhou Rural Commercial Bank +8.6%, Jiangsu Zijin Rural Commercial Bank +8.1%. The "highest" year-on-year growth rates of net income attributable to the parent company in the first half of 2024 are: Bank of Hangzhou +20.1%, Changshu Bank +19.6%, Qilu Bank +17.0%, Shanghai Pudong Development Bank +16.6%, Jiangsu Suzhou Rural Commercial Bank +15.6%.

The pressure on bank revenue still exists, but the pressure on asset quality may be alleviated. The current performance pressure mainly arises from insufficient effective credit demand, downward loan pricing, lower fees for the sale of wealth management funds in the middle-income segment, and adjustments to the fees of the bank-insurance channels. The above-mentioned pressure continues in the second half of 2024, but on one hand, the gradual release of the benefits of the reduction in the benchmark deposit interest rates and on the other hand, the adjustments to the fees of the bank-insurance channels and the mortgage loan interest rates all took place in the second half of 2023. Therefore, although the revenue is still under pressure in the second half of 2024, the growth rate is expected to stabilize and rise gradually quarter by quarter. At the same time, in the context of the gradual exposure and clearance of real estate risks, the significant fluctuations in bank asset quality have eased concerns, and the valuation of the banking sector is expected to further improve.

In summary, Minsheng Securities reiterates two main themes: prosperity & dividends.

1) Economic Outlook: The differentiation of valuations within the sector is still relatively low, and it is suggested to continue to focus on higher-growth banks that benefit more from economic recovery, such as Jiangsu Changshu, Bank of Qilu, Bank of Chengdu, Jiangsu Bank, Bank of Hangzhou, and other banks with a high performance outlook. Banks with a high performance outlook have greater potential for valuation recovery, and are expected to achieve more substantial excess returns.

2) Dividend: During the economic recovery process, defensive high dividend yield strategies still have the advantage. With the stable feature of low valuations and stable cash dividend proportions in state-owned banks, the high dividend yield still stands out in terms of cost-effectiveness. In addition, the dividend range is expected to continue to expand from state-owned banks to some medium and small-sized banks, which have the characteristics of low valuations and stable cash dividend proportions. Furthermore, the implementation of mid-term dividend plans by multiple banks also sends a bullish signal of stable dividend payouts to the market, which has a certain strengthening effect on the cost-effectiveness of high dividend yield investments within the sector.

Risk Warning: Excessive macroeconomic fluctuations, deterioration of asset quality, and industry net interest margin decline exceeding expectations.