Key investment points: China Merchants Bank's net profit growth rate in the single quarter was positive in 24Q3, the overall asset quality was stable, and the decline in net interest spreads narrowed. We maintained the company's “superior to the market” rating.

The growth rate of net profit to mother in a single quarter was corrected. China Merchants Bank's revenue for the first three quarters of 2024 was -2.9% year-on-year, and net profit to mother was -0.6% year-on-year. 24Q3 revenue for the single quarter was -2.5%, net profit to mother +0.8% year-on-year, and the growth rate of net profit to mother for the single quarter was positive. The core Tier 1 capital adequacy ratio was +1.36pct year-on-year to 14.73%.

The overall quality of assets is stable. The overall defect rate remained flat at 0.94% month-on-month. The provision coverage rate was 432.15%, -2.27pct month-on-month. The attention rate was +6bp month-on-month to 1.30%. The overdue rate was -6bp to 1.36% month-on-month. In the first three quarters, China Merchants Bank lost 36.346 billion yuan in credit impairment, a year-on-year decrease of 8.55%. Among them, credit impairment losses on loans and advances were 36.27 billion yuan, a year-on-year decrease of 5.196 billion yuan, mainly due to the Group's continuous optimization of the loan customer structure and business structure, and the asset quality remained stable.

The decline in net interest spreads narrowed. The 24Q1-3 net interest spread was 1.99%, down 1 bps from 2.00% of 24H1, and the decline narrowed (24Q1: -2bp). The estimated net interest spread for the 24Q3 quarter was 1.92%, up 1 bps from month to month. The return on 24q3 interest-bearing assets fell 3bp to 3.41% month-on-month, and the interest-bearing debt cost ratio fell 4 bps to 1.61% month-on-month.

Investment advice. We forecast EPS of 5.74, 5.92, and 6.16 yuan in 2024-2026, with net profit growth rates of -0.18%, 3.24%, and 3.87%. We obtained a reasonable value of 46.88 yuan based on the DDM model; according to the PB-ROE model, the 2024E PB valuation was 1.00 times (0.48 times that of a comparable company), and the corresponding reasonable value was 40.48 yuan. Therefore, the reasonable value range is 40.48-46.88 yuan (corresponding to 2024 PE is 7.06-8.17 times, corresponding PE is 5.89 times that of the same company), maintaining the “superior to the market” rating.

Risk warning: The solvency of enterprises has declined, asset quality has deteriorated dramatically; financial supervision policies have undergone major changes.