Introduction to this report:

The performance of the Chongqing Agricultural Commercial Bank for the third quarter of 2024 was slightly lower than expected. Other non-interest net income growth slowed, the supporting effect on revenue weakened, interest spreads stabilized, asset quality was basically stable, and the increase rating was maintained.

Key points of investment:

Investment advice: Weak loan demand since 2024 combined with multiple factors such as multiple LPR cuts and falling stock mortgage interest rates, adjusted the net profit growth forecast of the Chongqing Agricultural Commercial Bank for 2024-2026 to 3.28%/3.30%/5.07%, corresponding to EPS 0.99 (unchanged) /1.02 (-0.02) /1.08 (-0.04) yuan. Considering the acceleration of regional debt in Chongqing, local debt pressure has been reduced, which is beneficial to the improvement of the asset quality of the Chongqing Agricultural Commercial Bank; in addition, the Chengdu-Chongqing Shuangcheng Economic Zone and the strategy of a new land and sea corridor in the west continues to advance, providing support for asset investment. The target price of the Chongqing Agricultural Commercial Bank was raised to HK$7.27, corresponding to 0.61 times PB in 2024, maintaining an increase rating.

Q3 There was a slight decline in revenue and profit. 2024Q3's revenue growth rate in a single quarter was -2.7%, down 2.9 percentage points from Q2. The net interest revenue growth rate was -4.8%. Thanks to stable interest spreads, the net interest income decline narrowed; the net income growth rate of handling fees and commissions was -10.3%, which was nearly 10 percentage points narrower than Q2; the growth rate of other non-interest net income was 18.6%. Compared with the previous two quarters, the growth rate of growth slowed significantly, or was affected by fluctuations in the August bond market, which had limited support for revenue. Under pressure on revenue, the Chongqing Agricultural Commercial Bank continued to improve the level of refined management and take more measures to reduce costs and increase efficiency. Q3 management expenses decreased by 3.7% year-on-year, while moderately reducing provision increases. Under effective control on the expenditure side, the net profit growth rate eventually rose back to -0.6%.

Public loans have increased markedly, and interest spreads have stabilized. 2024Q3 added 5.105 billion yuan in public loans in a single quarter, 42% more than the amount invested in Q3 in 2023, and the share of loans in total assets increased to 45.2%; deposit growth was affected by the decline in the size of public deposits, and the growth rate slowed further.

The cumulative net interest spread for the first three quarters of 2024 was 1.61%, down 0.16 percentage points from the same period last year, and the decline narrowed by 0.05 percentage points. The estimated net interest spread for Q3 was 1.48%, up 1 bp from Q2. Among them, the return on interest-bearing assets decreased by 5 bps, the decline narrowed, and the cost ratio of interest-bearing debt decreased by 7 bps, mainly due to effective control of deposit costs.

Asset quality is generally stable. At the end of 2024Q3, the company's non-performing loan balance and non-performing ratio both fell. Among them, the non-performing loan balance was 8.372 billion yuan, down 0.032 billion yuan from the end of Q2, and the non-performing loan ratio was 1.17%, down 2 bps from the end of Q2; the provision coverage rate was 358.6%, down 1.7 percentage points from the end of Q2, and the loan ratio was 4.20%, down 8 bps from the end of Q2, and continued to maintain a high level of risk compensation.

Risk warning: Regional credit competition intensifies; retail loan risk exposure exceeds expectations.