Continued growth in scale and increased non-interest contribution
Zheshang Bank's net profit, operating income, and PPOP in 2023 were +10.5%, +4.3%, and 0.3%, respectively. The growth rate was the same as in January-September, +0.2pct, and -0.2pct. A dividend of $0.16 per share is proposed in 2023, with an annual cash dividend ratio of 32% (2022:38%) and a dividend ratio of 5.58% (2024/3/29).
In view of the slowdown in revenue growth, we forecast EPS of 0.57/0.59/0.61 yuan in 2024-26, forecast a BVPS of 6.28 yuan in 24, and A/H shares correspond to 0.47/0.33 times PB. A/H shares are comparable to the company's 24-year wind consensus PB 0.48/0.42 times. The company's operation and management capabilities are efficient and scale growth continues, and should enjoy a certain valuation premium. We give A/H shares a 24-year target PB 0.58/0.45 times, A/H shares have a target price of 3.64 yuan/3.07 HKD, A shares maintain an “overholding” rating, and H shares maintain a “buy” rating.
Continued growth in scale and stable deposit costs
Total assets, loans, and deposits at the end of 23 were +19.9%, +12.9%, and +11.1% year-on-year, compared with +3.6pct, +0.2pct, and +7.0pct at the end of September. In '23, new loans were mainly contributed to the public sector, with new loans accounting for 74%, 31%, and -5% for the public sector, retail, and notes respectively. Net interest spread for '23 was 2.01%, compared to January-June-13 bps. The 23-year yield on interest-bearing assets and loan yields were 4.16% and 4.87%, respectively, compared to January-June -14 bps and -8 bps.
The company's debt-side costs remained stable. The 23-year interest-bearing debt cost ratio and deposit cost ratio were the same as 23H1. The company continues to improve its supply chain finance digital intelligence capabilities. By the end of December, it had served more than 2,600 digital supply chain projects, provided a financing balance of more than 160 billion yuan, and served more than 40,000 upstream and downstream customers.
Non-interest contributions have increased, and other non-interest contributions have picked up
Non-interest income in '23 was +15.4% YoY, +3.5pct compared to January-September. Earnings were +5.2% year-on-year, compared to January-September-4.0pct. Among them, settlement and settlement, underwriting and consulting, escrow and fiduciary fees increased rapidly, +15.5%, +13.6%, and +11.9% compared with the same period. The company increased the diversification of wealth management products, and the scale of consignment insurance and trusts grew steadily. In '23, agency insurance added +44% of premiums compared to the same period, and the balance of trust products was +102% compared to the beginning of the year. Other non-interest income in '23 was +20.6% year-on-year, +7.5pct compared to January-September. Mainly due to the company's enhanced assessment of the financial market situation and optimization of position structures, the return on transactional financial assets increased compared to the previous year.
Asset quality is stable, and credit costs are declining
The non-performing rate and provision coverage rate at the end of 23 were 1.44% and 183%, which was the same as -1 bp at the end of September, and asset quality remained stable. The non-performing loan ratios to the public and retail sectors were -0.22pct and +0.41pct at the end of 23H1, respectively.
The attention rate and overdue rate at the end of 23 were 5bp and -16bp at the end of 23H1, respectively, and the hidden risk index was optimized.
23Q4 annualized bad generation rate 1.46%, compared with 23Q3 +0.22pct month-on-month, 23Q4 annualized credit cost 1.44%, and -0.28pct year over year. The capital adequacy ratio and core Tier 1 capital adequacy ratio at the end of September were +0.36pct and -0.06pct at the end of September to 12.19% and 8.22%.
Risk warning: Economic recovery fell short of expectations, and the deterioration in asset quality exceeded expectations.