Matters:

On the evening of October 28, Bank of Ningbo disclosed its 2024 three-quarter report. In 2024, Q1-3, the company achieved operating income of 50.753 billion yuan, +7.45% (H1 +7.13% year over year); net profit to mother was 20.707 billion yuan, up 7.02% year on year (H1 +5.42% year over year). The defect rate is 0.76%, and the provision coverage rate is 404.80%.

Commentary:

The cumulative revenue growth rate increased quarterly, mainly because the year-on-year growth rate of net interest income continued to widen, and net handling fee revenue was still under some pressure. 1) Revenue growth continues to accelerate and the structure is good, and net interest income still provides good support for revenue. 24Q1-3 net interest income/net handling fee/other non-interest income were +16.91%/-30.25%/+0.31%, respectively, of which Q3 net interest income was 12.163 billion yuan in a single quarter, continuing +4.4% month-on-month on a Q2 basis. The average cumulative daily interest spread disclosed by the company was 1.85%, down 2 bps from the first half of the year. Our net annualized interest spread for a single quarter measured by our balance was 1.81%, flat compared to Q2. Among them, the return on the asset side stabilized at 3.91%. From a structural perspective, Ningbo's share of asset-side mortgages was relatively low. 24H1 mortgages declined further to 6.55% of total loans. Q4 was affected by stock mortgage adjustments and 25Q1 was relatively limited by repricing. 2) Looking at non-interest income, Bank of Ningbo achieved net processing fee revenue of 3.75 billion yuan, or -30.3% year over year. On the one hand, the negative year-on-year growth rate was further expanded compared to H1. On the one hand, it is expected that the revenue side will still be affected by capital market fluctuations and changes in investors' risk appetite, and wealth business revenue will decline year on year; at the same time, handling fee expenses increased by 40.4% year on year. Other non-interest income increased by 0.31% year on year. Among them, the year-on-year growth rate of investment income changed from positive to negative, -5.7% year-on-year, and return on changes in fair value -0.4%. 3) Net profit to mother increased 7.02% year on year, and the cumulative growth rate picked up compared to H1. Considering that the company's consumer finance subsidiaries still have a diluting effect on the overall provision coverage rate, the company's asset impairment losses increased 17.7% year-on-year under a low base during the same period.

However, there were cost savings. The cost-revenue ratio was 33.4%, down 3.8% year over year.

As public investment continues to support credit growth, retail credit investment is picking up to a certain extent. The year-on-year growth rate of Q3 credit slowed slightly to 19.6%, mainly due to a certain drop in pressure on notes. Among them, 24Q3 loans added 46.4 billion, and the year-on-year increase was basically the same as 23Q3. Among them, public/retail/notes generally increased 38/22.8/-14.5 billion yuan, respectively, an increase of 23.5 billion/ a decrease of 10.1 billion yuan, and a decrease of 15.2 billion yuan, respectively. On the one hand, retail credit in Q3 recovered to a certain extent on the basis of Q2. Consumer loans are expected to have some support, but they are still relatively weak compared to the same period in '23; at the same time, they generally continue to support public loans, and there is a drop in pressure on notes. Deposits continued to grow slowly. Q3 deposits increased by 21.4 billion, up 17.6% year on year. Among these, for public deposits, retail deposits were 16.3% and 21.1% year-on-year respectively.

Asset quality continued to be excellent, net bad generation declined month-on-month, and overall provision for safety pads was sufficient.

In 24Q3, Bank of Ningbo's non-performing rate remained flat at 0.76% month-on-month, provision coverage declined 16 pct to 404.8% month-on-month, and loan ratio was -11bp to 3.08% month-on-month. It is expected that the consolidation of financial subsidiaries will still have a diluting effect. Considering the return of write-offs, the net generation rate of bad net generation in Q3 fell marginally by 11 bps to 1.07% in a single quarter. Judging from overdue loans and interest indicators, the share of overdue loans was 1.08%, up 6 bps from the same period last month. It is expected that with slight fluctuations in the current macroeconomic business environment, retail assets are still under pressure, but recently policies have been implemented at an accelerated pace, leading to a recovery in confidence, and the overall risk is expected to be manageable.

Investment advice: Bank of Ningbo's revenue grew slightly, supported by net interest income. Overall performance maintained steady growth, and overall asset quality remained stable. In the long run, Bank of Ningbo's fundamentals are solid and stable, and diversified profit centers guarantee the stability and durability of its profits. A developed regional economy, flexible market-based mechanisms, excellent management expertise, and a mature risk control system are key factors in maintaining its high growth. Currently, these factors have not changed, and we continue to be optimistic about its long-term value. Based on the company's performance situation and current macro environment, we gave the company a 2024E/2025E/2026E net profit growth rate forecast of 5.9/ 9.8%/10.7%. The current stock price corresponds to 24E/25E PB 0.88X/0.78X. Considering the accelerated implementation of the current series of policies, combined with the company's fundamentals and historical valuation center, we gave the 2025 target PB 0.90X, corresponding to a target price of 29.96 yuan, maintaining a “recommended” rating.

Risk warning: Economic recovery fell short of expectations, the quality of retail loan assets deteriorated, and capital markets fluctuated.