Semi-annual report overview: The decline in revenue has slowed down, and the growth rate of net profit has picked up somewhat. CCB's interest spreads declined further in the second quarter of 2024. Credit growth slowed down, dragging down net interest income by 2.3% month-on-month. However, due to the bullish bond market, other non-interest growth rates were faster, which hedged the decline in net interest income. The overall cumulative year-on-year growth rate of revenue fell 0.4 percentage points to -3.4% from the first quarter, and the decline slowed; the overall quality of the company's assets remained steady. The cumulative year-on-year growth rate of net profit rebounded 0.4 percentage points to -1.8% from the first quarter.

Net interest income: Q2 net interest income fell 2.27% month-on-month. On the one hand, interest spreads continued to decline, and on the other hand, credit investment slowed in the second quarter. In terms of price, net interest spreads fell 7 bps to 1.49% in the second quarter, and the decline was larger than in the first quarter. Among them, asset-side yield fell 10 bps to 3.18% month-on-month, and debt-side interest rates fell 4 bps to 1.88% month-on-month. The decline in interest spreads in the second quarter was mainly dragged down by a large decline in asset-side returns. The debt side moderated the decline in interest spreads, but the effect was not obvious. In terms of scale, the growth rate of credit investment slowed in the second quarter after a good start, which also dragged down net interest income.

Growth rate and structure of assets and liabilities: Investments in the second quarter were still mainly aimed at principals, and the size of deposits declined. 1) Credit: In terms of total volume, CCB invested 414.52 billion yuan in a single quarter, down 188.69 billion yuan from the same period last year. The cumulative investment in the first half of this year was 1.58 trillion yuan, down 18.07% from the same period last year. Structurally, the second quarter was still dominated by referendums, and the notes had a certain impact. In the second quarter, 817.5/55.23/370.2 billion yuan were invested in public/ personal/note loans respectively. In terms of the first half of the year, credit in the first half of the year was mainly investment in infrastructure and manufacturing.

The share of new public credit increased by 12.1 percentage points to 93.4% compared to 2023. The share of new infrastructure loans was 38.5% of the total new loans, which was the main support for new public loans, followed by the manufacturing sector, which accounted for 21.3%, up 3% from 2023. Retail credit declined overall, and personal operating loans in particular. 2) Deposits:

CCB added 1.05 trillion yuan in deposits in the first half of the year, down 60% from the same period last year. Among them, the deposit size is expected to drop by 672.18 billion in the second quarter due to factors such as manual interest compensation and rectification, accounting for a 2.9% to 79.6% decrease in the share of interest-bearing debt. Looking at the customer structure, savings deposits grew well. Residents' deposits maintained a growth rate of 9.3%, accounting for 1.6% to 56.9% higher than at the beginning of the year. Public deposits fell 2.7% year on year due to factors such as manual interest compensation and rectification.

Asset quality: Overall, it remains stable. 1. Defective dimension - the defect rate decreased by 1 bp. 1H24 CCB's non-performing rate was 1.35%, down 1bp from month to month. The cumulative annualized net generation rate of poor performance decreased by 3 bp to 0.55% month-on-month. In terms of future negative pressure, the share of concerned loans was 2.07%, down 37 bps from the end of the previous year. 2. Overdue dimensions - the overdue rate has increased. The 1H24 overdue rate increased 16 bps to 1.27% from the beginning of the year, and the poor share of overdue accounts also increased by 12.68% to 94.41%. 3. Provision dimension - Provision is basically stable. The provision coverage rate increased 0.58 percentage points month-on-month to 238.75%; loan coverage decreased by 1 bp to 3.22% month-on-month.

Investment advice: Company 2024E, 2025E, 2026E PB 0.58X/0.54X/0.50X; PE5.55X/5.65X/5.56X. As a major state-owned bank, China Construction Bank has actively played its role as a leading state-owned bank. Its performance has grown steadily, the company has excellent management and strong innovation capabilities. It has increased investment in technology in recent years, and is expected to build a first-class banking group. We are optimistic about its continued competitiveness. The first coverage gave a “gain” rating, and active attention is recommended.

Risk warning: The economic downturn exceeded expectations, the company's operations fell short of expectations, and research information was not updated in a timely manner.