The Bank of China's net profit, operating income, and PPOP for the first three quarters of 2024 were +0.5%, +1.6%, and -2.6%, respectively. The growth rate was +1.8pct, +2.3pct, and +0.3pct compared to the first half of the year. The non-interest growth of the company's performance in the first three quarters accelerated, driving improvements in revenue and profit growth, and continuously consolidating the comprehensive characteristics of global advantages. We believe that the company has outstanding advantages in internationalization and maintains the A/H share increase/purchase rating.

Scale growth is slowing down, and interest spreads are still under pressure

The growth rates of total assets, loans, and deposits at the end of September were +7.3%, +8.6%, and +4.5% respectively. Compared with -1.8pct, -1.2pct, and -0.8pct at the end of June, the scale growth rate slowed. Net new loans of $347 billion were added in the third quarter, which contributed 93%/7% to public (including notes) and retail sales respectively. 24Q1-Q3 net interest spread was 1.41%, -3bp compared to H1. Net income from 24Q1-3 interest was -4.8% YoY (H1-3.1% in '24), a major drag on performance.

Non-interest growth accelerates, costs and expenses improve

24Q1-3's non-interest income was +21.0% YoY (24H1 +6.0% YoY), and investment income and exchange gains and losses drove the acceleration of non-interest growth. Net revenue from handling fees and commissions in the first three quarters was -3.9% (24H1 -7.6% year over year), and the year-on-year decline narrowed; however, the share of revenue in revenue was 12.7%, which is still lower than 13.4% in the same period last year. Other non-interest rates in the first three quarters were +49.9% YoY (+22.2% YoY in the first half of the year), mainly boosted by investment income and exchange gains and losses (+114.2% and +27.5%, respectively). 24Q1-3 cost to revenue ratio was 26.8%, year-on-year -0.2pct, and operating efficiency was further improved.

Bad indicators fluctuate and credit costs decline

The non-performing loan ratio and provision coverage rate at the end of September were 1.26% and 199%, respectively. Compared with +2 bp and -3 pct at the end of June, the non-performing ratio fluctuated, and the provision level declined marginally. The estimated annual credit cost for 24Q3 was 0.48%, -0.16pct year on year. The decline in credit costs drove profit release. It is estimated that in Q3, the annualized bad generation rate in a single quarter increased by 0.09pct to 0.45% month-on-month. The capital adequacy ratio at the end of September and the core Tier 1 capital adequacy ratio were 19.01% and 12.23% respectively, compared with +0.10pct and +0.20pct at the end of June, consolidating the capital level. Recently, the Ministry of Finance announced that it plans to raise capital through channels such as issuing special treasury bonds and supplement the core tier 1 capital of major banks. If the capital injection is implemented, it is expected to leave capital space for major banks to strengthen their services to the real economy.

Give A/H shares a 25-year target PB0.70/0.50 times

We forecast an EPS of 0.80/0.83/0.86 yuan for 24-26, and a BVPS of 8.72 yuan for 25-year, with A/H corresponding to PB0.55/0.39 times. A/H shares are comparable to the company's 25-year wind expectations of PB 0.57/0.41 times. The company has outstanding internationalization advantages and should enjoy a valuation premium. We give A/H shares a 25-year target PB0.70/0.50 times, and A/H shares have a target price of 6.10 yuan/4.75 HKD, maintaining an increase holding/purchase rating.

Risk warning: Policy promotion fell short of expectations; asset quality deteriorated beyond expectations.