Incident: On October 23, the Bank of Nanjing announced 3Q24 results: achieved revenue of 38.558 billion yuan in the first three quarters of 2024, YoY +8.03%; single-quarter revenue of 12.343 billion yuan and YOY +8.38% in the third quarter. Net profit for 3Q24 was 16.663 billion yuan, YoY +9.02%; net profit to mother for the third quarter was 5.069 billion yuan, up 10.2% year-on-year. As of the end of September '24, the asset size was 2.55 percent, the non-performing loan ratio was 0.83%, and the provision coverage rate was 340.40%.

1. Operating efficiency continues to improve, and all businesses develop in a balanced manner

Performance was stable, and non-interest income remained high. 3Q24 achieved operating income of 38.558 billion yuan, YoY +8.03%, up 0.16 percentage points from 1H24; net profit of 16.663 billion yuan, YoY +9.02%, up 0.51 percentage points from 1H24. The revenue growth rate and profit growth rate remained stable. Looking at the breakdown, net interest income was 19.614 billion yuan, YoY -1.36%, and the net interest income growth rate rebounded (1H24 was -6.0%), accounting for 50.87%; non-interest net income was 18.944 billion yuan, YoY +19.84%, accounting for 49.13%; net income from handling fees and commissions was 3.504 billion yuan, YoY +11.71%. The growth rate of non-interest income was high.

ROE declined and remained high. The 3Q24 annualized weighted average ROE was 15.08%, down 0.17 percentage points year on year. ROE declined year on year, but it is still at a high level of listed banks.

2. Assets continue to grow at an accelerated pace, and interest spreads stabilized

Asset size is growing steadily, and deposits are growing at a slow rate. As of the end of September '24, the company's total assets were 2.55 percent, YoY +13.67%; total liabilities were 2.37 percent, YoY +14.17%; total deposits were 1.4 percent, YoY +4.51%; and total loans were 1.24 percent, YoY +13.71%. The growth rate of assets and liabilities remains high, the growth rate of deposits continues to be sluggish, and the growth rate of payable bonds is high.

Interest spreads have stabilized. The net interest spread for 24Q3 is estimated to be 1.35%, up 8BP from 24Q2; on the asset side, yield on interest-bearing assets was 4.02%, up 5BP from 24Q2; on the debt side, the cost ratio of interest-bearing debt was 2.38%, down 2BP from 1H24.

2. Stable asset quality and slight increase in capital adequacy ratio

Asset quality is stable, and interest rates have increased slightly. As of the end of September '24, the non-performing loan ratio was 0.83%, down 7BP from the beginning of the year; the focus loan ratio was 1.14%, up 7BP from 1H24. The Bank of Nanjing continues to maintain an excellent level of non-performing rate, and the attention rate has increased slightly.

The provision coverage rate has declined. As of the end of September '24, the provision coverage rate was 340.40%, down 1.62 percentage points from 1H24; the loan ratio was 2.82%, down 5BP from the end of 1H24, maintaining good risk offsetting capacity.

There was a slight increase in capital adequacy ratios. As of the end of September '24, the company's core Tier 1/ Tier 1/ capital adequacy ratios were 9.02%, 10.83%, and 13.76% respectively, up 5BP, 4BP, and 93BP from 1H24 respectively.

Investment proposal: In the first three quarters of 2024, BNP Paribas, Jiangsu Traffic Control, and Nanjing Hi-Tech increased their holdings of 0.151 billion shares, 0.039 billion shares, and 0.013 billion shares respectively, accounting for 1.44%, 0.37%, and 0.13% of the total share capital at the end of the period. The majority shareholders' holdings increase their confidence in the future development of the Bank of Nanjing. We forecast a profit growth rate of 9.4%/10.5% in 24/25, maintain a “highly recommended” rating, and give a target valuation of 0.8 times 24-year PB, corresponding to a target price of 11.4 yuan/share.

Risk warning: financial concessions, narrowing interest spreads; wealth management development falls short of expectations, etc.