The decline in revenue narrowed, and net profit to mother increased positively year over year. The company achieved operating income of 626.4 billion yuan in the first three quarters of 2024, down 3.8% year on year. The decline was 2.2 percentage points narrower than in the first half of the year; net profit to mother was 269 billion yuan in the first three quarters, up 0.1% year on year, changing from negative to positive. The weighted average return on net assets for the first three quarters was 9.8%, down 0.8 percentage points year over year. Judging from performance attributions, net interest spreads are still dragging down net profit growth.

The size of assets has grown steadily. At the end of the third quarter of 2024, total assets increased 8.7% year on year to 48.4 trillion yuan. Starting in the second quarter, the scale growth rate declined from the previous double-digit growth rate, and growth was more steady. Among them, total loans increased 9.0% year over year, and deposits increased 1.8% year over year. The company's core Tier 1 capital adequacy ratio at the end of the third quarter was 13.95%, not much change from the beginning of the year.

Net interest spreads declined year-on-year and stabilized month-on-month. The average daily net interest spread disclosed by the company for the first three quarters was 1.43%, a year-on-year decrease of 24 bps, the same as in the first half of the year. On a month-on-month basis, the net interest spread for the third quarter was 1.43%, up 5 bps from the second quarter. Considering the effects of recent cuts in interest rates on stock mortgages, it is expected that net interest spreads for the fourth quarter will still have slight downward pressure, but judging from the trend, the downward pressure will decrease compared to the previous period.

Net income from handling fees decreased year-on-year, and other non-interest income increased significantly. The company achieved net processing fee revenue of 90.3 billion yuan in the first three quarters, a year-on-year decrease of 9.0%. Combined with the interim report, it should be mainly affected by factors such as public fund rate reform, implementation of the “integrated reporting and banking” policy of insurance, and capital market fluctuations, which is in line with industry trends. Other non-interest income was $59.4 billion, up 17.5% year over year, mainly due to increased earnings from changes in fair value.

Asset quality is stable. The company's defect rate at the end of the third quarter was 1.35%, the same as at the beginning of the year and the end of the second quarter. The provision coverage rate at the end of the third quarter was 220%, up 6 percentage points from the beginning of the year and 2 percentage points from the end of the second quarter. Overall, asset quality indicators are relatively stable.

Investment advice: The company's fundamentals are relatively stable. We maintain the profit forecast. We expect net profit to be 366.5/375.5/392 billion yuan in 2024-2026, with a year-on-year growth rate of 0.7/2.5/ 4.4%; diluted EPS is 0.99/1.01/1.06 yuan; the current stock price corresponds to PE 6.1/6.0/5.7x and PB is 0.59/0.55/0.52x, maintaining the “superior to the market” rating.

Risk warning: The weakening macroeconomic situation may adversely affect the quality of bank assets.