Incident: Bank of Changsha disclosed its 2024 three-quarter report. The first three quarters achieved revenue of 19.47 billion yuan, a year-on-year increase of 3.8%, and realized net profit to mother of 6.19 billion yuan, an increase of 5.9% over the previous year. As of the end of 24Q3, the defect rate and provision coverage rate were 1.16% and 314.54%, respectively, the same as the end of 24Q2, and an increase of 1.8 pc, respectively.

1. Performance: Q3 interest spreads are expected to stabilize in stages. The performance growth rate improved month-on-month. The 24Q1-Q3 company's revenue and net profit growth rates were 3.8% and 5.9% respectively, up 0.5 pc and 1.8 pc respectively from the 24H1 growth rate. Interest spreads are expected to stabilize in stages, and income related to bond market investment still strongly supports performance. Let's break it down:

1) Net interest income: The year-on-year growth rate of 24Q1-Q3 was -0.98%, a slight increase of 0.4 pc over the 24H1 decline.

Looking at a single quarter, 24Q3 net interest income grew at a year-on-year rate of -1.70%, improving 3.2pc from month to month. After the deposit listing interest rate was adjusted, deposit costs are expected to improve, and interest spreads stabilized.

2) Net revenue from handling fees and commissions: The year-on-year growth rate of 24Q1-Q3 was -17.8%, which is 5.8pc narrower than the 24H1 decline, mainly due to reduced year-on-year base pressure.

3) Other non-interest income: The year-on-year growth rate of 24Q1-Q3 was 46.3%, up 4.6pc from the 24H1 growth rate, continuing the high growth trend since the first quarter, or mainly due to the increase in investment assets in Q3.

2. Asset quality: overall stability

1) As of the end of 24Q3, the company's defect rate and attention rate were 1.16% and 2.48%, respectively, the same as at the end of 24Q2, and an increase of 22 bps, respectively. The increase in the attention rate may be mainly due to continued pressure on the quality of retail loan assets. The loan ratio and provision coverage rate were 3.64% and 314.54%, respectively, up 2 bps and 1.8 pc from the end of 24Q2.

2) 24Q1-Q3's annualized credit costs were 1.73%, down 1 bps from 24H1. Credit impairment losses were calculated in the first three quarters of 6.49 billion yuan, an increase of 0.18 billion yuan over the previous year.

3. Assets and liabilities: Q3 mainly increases investment assets

1) Assets: As of the end of 24Q3, the company's total assets and loans were 1.12 trillion yuan and 543.2 billion yuan respectively, up 10.4% and 11.3% year-on-year, up 0.5 pc and down 0.4 pc from the 24Q2 growth rate. Investment assets were mainly increased in Q3. Investment assets grew 10.1% in 24Q3, and the growth rate increased 2.4 pc from month to month. Looking at a single quarter, the total loan volume of 24Q3 companies increased by 9.6 billion yuan, a year-on-year decrease of 0.7 billion yuan. Credit investment is still expected to be dominated by public loans.

2) Liabilities: As of the end of 24Q3, the company's total liabilities and total deposits were 1.04 trillion yuan and 688.7 billion yuan respectively. The year-on-year growth rates were 9.9% and 8.9%, respectively, which was basically the same as the 24Q2 growth rate, down 1.8 pc. Looking at a single quarter, total deposits increased net by 6.1 billion yuan in 24Q3, a year-on-year decrease of 9.9 billion yuan.

Investment advice: As the largest commercial bank in Hunan Province, Bank of Changsha is rooted in the local area. It still has plenty of room for public, county, retail and other businesses. It is expected to achieve a net profit of 7.83/8.319/8.848 billion in 2024-2026, corresponding to a growth rate of 4.92%/6.24%/6.36%. Currently, the 2024 P/B is about 0.48x, maintaining a “buy” rating.

Risk warning: macroeconomic downturn; consumption recovery falls short of expectations; asset quality deteriorates further.