The decline in net revenue and profit narrowed, and achieved positive growth in a single quarter: from January to September 2024, the company achieved operating income of 196.123 billion yuan, a year-on-year decrease of 1.39%; net profit to mother was 68.69 billion yuan, a year-on-year decrease of 0.69%, and the annualized weighted average ROE was 9.06%, down 0.77 percentage points from the previous year. 2024Q3, revenue and net profit to mother increased by 3.31% and 1.19%, respectively, and both returned to positive growth from the previous quarter. The company's credit scale grew steadily, interest spreads were resilient, asset quality was steady, and the decline in net profit was narrower than in the first half of the year.

Credit investment is rising steadily, and interest spreads are resilient: from January to September 2024, the company's net interest income was 126.796 billion yuan, up 2.15% year on year; the 202403 single quarter increased 1.97% year on year. The company's annualized net interest spread for January-September was 1.28%, not the same as the previous year, down 1BP from 2024H1. Affected by both the reduction in LPR and the downturn in market interest rates, the downward pressure on asset-side loans and securities investment returns is strong; at the same time, the company has strengthened the refined management of deposit and loan pricing, and interest spreads have maintained a certain degree of resilience. As of September 2024, the total amount of the company's loans did not increase by 6.1% compared to the previous year, and credit investment has been rising steadily. In September, the company's loans to the public did not increase by 6.84% compared to the previous year, accounting for a stable share of more than 65%; personal loans did not increase by 6.33% compared to the previous year. As of September, the company's various deposits had not increased by 2.06% compared to the previous year; the trend of fixed-term deposits continued, and the share of time deposits did not increase by 3.24 percentage points to 67.14% compared to the previous year.

Revenue is still under pressure, and other businesses such as leasing contributed to the increase in non-interest income: from January to September 2024, the company's non-interest income was 69.327 billion yuan, down 7.27% year on year, and the decline was 4.88 percentage points narrower than in the first half of the year. The company's intermediary revenue was 29.353 billion yuan, a year-on-year decrease of 13.96%, mainly due to the “integration of reporting and banking” insurance fees and the continuing impact of fund fee reduction policies, which led to a decline in consignment insurance and fund revenue. The company's other non-interest income was 39.974 billion yuan, down 1.66% year on year, and the decline was 8.53 percentage points narrower than in the first half of the year; among them, investment income and other business revenue such as leasing were the main contributors. Investment income reached 20.504 billion yuan, down 2.92% year on year, and the decline was narrower than in the first half of the year; revenue from other businesses such as leasing reached 20.198 billion yuan, an increase of 12.69% year on year, and integrated management developed steadily.

Regarding the optimization of public asset quality and the increase in retail risk, focus on core tier 1 capital supplement: as of September 2024, the company's non-performing loan ratio was 1.32%, not down 1 BP from the previous year; the share of concerned loans was 1.58%, not up 7 BP from the previous year, and 8 BP lower than 2024H1. Specifically, the asset quality of public loans continues to be optimized, and retail loan risk has increased. The non-performing ratio for public and personal loans was 1.49% 1.09%, respectively, less than -16BP and +27BP compared to the previous year. In September, the company's provision coverage rate was 203.87%, not up 8.66 percentage points from the previous year. The company's core Tier 1 capital adequacy ratio was 10.29%, no increase of 0.06 percentage points over the previous year. The state plans to issue special treasury bonds to supplement the core Tier 1 capital of major banks. After the capital injection is completed, the company's capital adequacy level is expected to increase, and its ability to invest in credit will be further enhanced.

Investment advice: The company is the only major state-owned bank headquartered in Shanghai, and has a significant home market advantage. Specialized businesses in inclusive finance, trade finance, technology finance, wealth finance, and green finance are being developed in depth. Credit has grown steadily, retail transformation continues to advance, and comprehensive management results have been shown. Asset quality is stable, risk offsetting capacity increases, and the level of capital adequacy is expected to further increase. The dividends are stable, and the dividend rate is high. Combining the company's fundamentals and stock price flexibility, we were given a “recommended” rating for the first time. BVPS for 2024-2026 was 13.10 yuan/14.18 yuan/15.29 yuan, respectively, corresponding to the current stock price PB of 0.54X/0.50X/0.46X, respectively.

Risk warning: the economy falls short of expectations, risk of deteriorating asset quality; risk of falling interest rates and pressure on NIM.