Performance picked up marginally, and the net profit growth rate in a single quarter was corrected: from January to September 2024, the company achieved operating income of 626.422 billion yuan, down 3.82% year on year; net profit to mother was 269.025 billion yuan, up 0.13% year on year; and annualized weighted average ROE was 9.77%, down 0.79 percentage points year on year. 2024Q3, revenue and net profit to mother increased by 1.05% and 3.82%, respectively, and both returned to positive growth over the previous quarter. The company's other non-interest income increased rapidly, forming the main support for revenue; asset quality optimization, less pressure to accrue impairment losses, and provision to recoup contributed to profit growth.

Interest spreads stabilized month-on-month, and credit investment in key areas was high: from January to September 2024, the company's net interest income was 476.732 billion yuan, down 4.94% year on year; the 2024Q3 single quarter fell 1.07% year on year, and the decline narrowed by 8.44 percentage points month on month. The company's January-September annualized net interest spread is 1.43%, the same as 2024H1, and is expected to benefit mainly from debt cost optimization. As of the end of September 2024, the total amount of the company's loans increased by 7.7% compared to the end of the previous year, with public loans being the main driving force for growth. Corporate loans to the public increased by 8.43% from the end of the previous year, accounting for an increase of 0.42 percentage points to 62.31% compared to the end of the previous year. Among them, key areas such as manufacturing, strategic emerging industries, inclusiveness, and green loans were booming. Personal loans increased 2.24% from the end of the previous year; 2024Q3 increased 0.14% month-on-month, recovering from the previous quarter. With the gradual implementation of a package of incremental policies at the end of September, demand for personal loans is expected to recover. By the end of September, the company's various deposits had increased by 3.2% compared to the end of the previous year. It is expected that the impact of the suspension of “manual interest payments” in the first half of the year will gradually weaken.

Earnings pressure still exists, and other non-interest-bearing income increased: from January to September 2024, the company's non-interest income was 149.69 billion yuan, down 0.03% year on year. The decline was 3.55 percentage points narrower than in the first half of the year, mainly benefiting from high growth in other non-interest-bearing businesses. The company's intermediate business revenue was 90.323 billion yuan, down 8.98% year on year. The decline was slightly larger than in the first half of the year, and revenue was still under pressure. The company's other non-interest income was 59.367 billion yuan, up 17.53% year on year, up 11.86 percentage points from the first half of the year; of these, investment income was 31.086 billion yuan, down 17.35% year on year; due to the recovery in the capital market, fair value change income increased 11.691 billion yuan year on year, which is the main source of growth in other non-interest income.

Asset quality optimization, provision increase, and focus on core tier 1 capital replenishment: as of the end of September 2024, the company's non-performing loan ratio was 1.35%, down 1BP from the end of the previous year; provision coverage rate was 220.3%, up 6.33% from the end of the previous year, continuing the quarterly upward trend since this year. The quality of the company's assets has been optimized, and its ability to withstand risks has been continuously enhanced. At the end of September, the company's core Tier 1 capital adequacy ratio was 13.95%, up 23 BP from the end of the previous year, and the capital adequacy level remained superior to that of its peers. The national plan is to supplement the core first-tier capital of major banks. After the capital increase is implemented, the company's ability to serve the real economy will be further enhanced.

Investment advice: The company is one of the major state-owned banks, leading the industry in scale and market share, diversified business structure, and strong comprehensive management resilience. As the main business of exclusive responsibility, credit investment has been steadily expanded, structural transformation and upgrading, “GBC+” reforms have been promoted, and high-quality development capabilities have been enhanced. Asset quality is steady, risk resilience is improved, and capital adequacy levels are expected to further improve. The dividend ratio is stable and high, and shareholder returns are sustainable for a long time.

Combining the company's fundamentals and stock price flexibility, we maintain a “recommended” rating. The 2024-2026 BVPS is 10.31 yuan/11.08 yuan/11.87 yuan, which corresponds to the current stock price of PB0.60X/0.56X/0.52X.

Risk warning: Economic growth falls short of expectations, risk of deteriorating asset quality, risk of interest rates continuing to decline.