Incidents:

Minsheng Bank released its mid-year earnings report for 24 years. The company achieved revenue of 67.1 billion yuan in the first half of the year, YoY -6.17%, net profit to mother 22.5 billion yuan, YoY -5.48%; a non-performing ratio of 1.47%, and a non-performing provision coverage rate of 149.3%.

Review summary:

The decline in revenue improved marginally, and the net interest spread stopped falling and stabilized. The company's 24H1 revenue was 67.1 billion yuan, YOY -6.17%, a slight improvement over 24Q1 (-6.8%). Among them, 24H1 net interest income was 48.6 billion yuan, -5.36% year on year; net non-interest income was 18.5 billion yuan, down 8.22% year on year, an improvement of 4 pct compared to 24Q1 (-12.22%).

Asset return side: In the first half of 2024, or due to the LPR reduction policy, the average yield on corporate loans fell to 4.07%, and the average daily loan balance accounted for 62.4% of total interest-bearing assets, an increase of 1.03 pct over the end of 23. Interest-bearing debt side: Cost control effectively frees up space for interest spreads. Minsheng Bank's average daily deposit balance in the first half of the year accounted for 62.34% of interest-bearing liabilities, with an average cost ratio of 2.24%. The total cost ratio of interest-bearing debt was 2.38%, freeing up about 6 bps and 5 bp of space from mid-'23 and early '24, respectively. Among them, the cost ratio of 24H1 deposits and bonds dropped to 2.24% and 2.59%.

Interest spread stabilized: 24H1 net interest spread of 1.38%, the same as 24Q1, and is expected to gradually stabilize.

Net income from investments increased year over year. 24H1 Minsheng Bank's net revenue was 9.6 billion yuan, YoY -10.99%, up 2.59 pct from a negative increase of 13.58% in the first quarter, and its share of revenue fell to 14.37%. On the other hand, other non-interest net income fell 5.01% year over year

Asset side: Asset restructuring, credit resources favoring the real economy. The total interest-bearing assets were 7452.7 billion yuan, down 1.3% from the first quarter of this year. Credit situation: Public loans declined 10.9% month-on-month in 24Q2, mainly affected by mining, real estate, leasing and business services (-4.2%, -1.7%, -0.9% compared to the beginning of the year), but loan investment in physical sectors such as construction, manufacturing, wholesale and retail (+9.5%, +8.7%, +5.6% compared to the beginning of the year) increased. Debt side: Cost management, stable structure. The interest-bearing debt balance was $6,760 billion, -2.5% compared to the beginning of the year. In terms of deposit conditions, deposits at the end of 24Q2 decreased by 5.1% compared to the end of 23, and retail deposits and bond issuance showed impressive performance. The retail deposit balance ($1286.2 billion) increased 6.6% from the end of '23, and the bond issuance balance ($855.7 billion) rose 26.6% from the end of '23. In addition, 24H1 retail activity grew strongly, +35.9% from the beginning of the year.

The quality of assets has stabilized, and the ability to offset risks has improved. The non-performing loan ratio at the end of 24Q2 was 1.47%, and the loan provision ratio was increased by 0.03 percentage points to 2.19% compared to 24Q1, maintaining a margin of safety.

Changes in the top ten shareholders: Hong Kong Central Clearing Co., Ltd., the largest shareholder of the company, increased its holdings by 0.01pct to 18.93%.

Profit Forecast and Valuation:

We forecast a year-on-year growth rate of -1.11%, 1.19%, and 3.14% for the company's 2024-2026 net profit, corresponding to current BPS prices: 13.22, 14.36, 15.59 yuan. Using the dividend discount model, the estimated target price was 4.11 yuan, corresponding to 0.31xPb in 24 years. The current price space was 23%, which was raised to a “buy” rating.

Risk warning: macroeconomic shocks; non-performing assets may be greatly exposed; interest rate pressure may increase due to a continued decline in interest rates.