Net profit to mother maintained steady growth. The company achieved operating income of 102.4 billion yuan in the first three quarters of 2024, down 8.8% year on year, and the growth rate was the same as in the first half of the year; net interest income was 72.6 billion yuan, down 11.0% year on year; net profit to mother was 38.4 billion yuan in the first three quarters of 2024, up 1.9% year on year. The growth rate increased slightly by 0.2 percentage points from the first half of the year, maintaining relatively stable growth. The weighted average ROE for the first three quarters of 2024 was 9.7%, down 0.6 percentage points year over year. Judging from performance attributions, net interest spreads mainly dragged down the growth of net profit due to mother, while other non-interest income and credit impairment losses supported the growth rate of net profit attributable to mother.

Prudent expansion of asset size. The company's total assets increased 0.7% year-on-year to 6.9 trillion yuan at the end of the third quarter of 2024, up 1.7% from the beginning of the year, and the scale expansion was more cautious. Among them, total loans increased 3.6% year over year to 3.9 trillion yuan, and deposits decreased 1.6% year over year to 4 trillion yuan. The company's core Tier 1 capital adequacy ratio at the end of the third quarter was 9.67%, up 0.49 percentage points from the beginning of the year.

Net interest spreads declined year over year. Our estimated net interest spread for the first three quarters of 2024 was 1.47%, a year-on-year decrease of 25 bps. The year-on-year decline narrowed slightly compared to the interim report. The decline in net interest spreads is the main factor influencing the decline in revenue. The decline in net interest spreads is estimated to be mainly caused by a decline in LPR and weak demand for credit.

Net income from handling fees decreased, and other non-interest income increased a lot. The company achieved net fee revenue of 15.2 billion yuan in the first three quarters of 2024, a year-on-year decrease of 20.6%. Other non-interest income increased 26.8% year-on-year to 14.6 billion yuan in the first three quarters, mainly due to increased investment income and profit and loss from changes in fair value.

The cost-to-revenue ratio increased slightly, and credit impairment losses declined year-on-year. The company spent 28.2 billion yuan on business and management expenses in the first three quarters of 2024, a year-on-year decrease of 3.3%. The cost-revenue ratio for the first three quarters was 27.6%, up 1.6 percentage points year-on-year. Credit impairment losses of 24.6 billion yuan in the first three quarters, a year-on-year decrease of 30.7%, were the main driving factors supporting the increase in net profit to mother.

The defect rate is stable, and the provision coverage rate has been reduced. The company's non-performing loan balance at the end of the third quarter of 2024 was 48.5 billion yuan, an increase of 1 billion yuan over the end of the previous year. The non-performing loan ratio at the end of the third quarter was 1.25%, the same as at the end of the previous year.

The provision coverage rate at the end of the third quarter was 171%, a decrease of 10 percentage points from the end of the previous year.

Investment advice: We keep our profit forecast unchanged. We expect the company's net profit to be 40.9/41.4/42.6 billion yuan in 2024-2026, with a year-on-year growth rate of 0.3/1.1/2.9%; diluted EPS is 0.61/0.62/0.64 yuan; current stock prices correspond to PE of 5.2/5.1/4.9x and PB of 0.39/0.37/0.35x, maintaining a “neutral” rating.

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