Incident: On March 29, the Bank of Wuxi released its 2023 annual report, with revenue of 4.54 billion yuan for 23 years, YoY +1.3%; net profit to mother of 2.20 billion yuan, YoY +10.0%; non-performing rate of 0.79%, and provision coverage of 523%.
The revenue growth rate increased slightly, and the profit growth rate slowed. The revenue and net profit of the Bank of Wuxi in '23 were +1.3% and +10.0% year-on-year, respectively, +0.4pct and -6.2pct compared to 23Q1-3, respectively. The slowdown in profit growth may be due to banks adjusting their impairment preparation measures. Credit impairment losses in the 23Q4 single quarter increased by 200 million yuan compared to 22Q4.
Divided revenue, net interest revenue growth continued to be pressured. Net interest income in '23 was -0.8 pct year on year, down 0.1 pct from 23Q1-3. The growth rate of non-interest income was relatively strong. Intermediate business revenue was -41.8% year over year, mainly affected by agency business, but since middle income did not account for a high share of non-interest income, the impact on the overall growth rate was relatively manageable. Other non-interest income maintained a high growth rate, +23.4% year over year, contributing mainly from disposal income from transactional financial assets.
Scale expansion is steady, and inclusive transformation is progressing steadily. The total assets, total loan amount, and total deposit amount of the Bank of Wuxi were +11.0%, 11.2%, and 11.4% year-on-year respectively in '23, and the growth rate maintained an upward trend. Since '22, the growth rate of Bank of Wuxi's loan scale has stopped declining. On the one hand, we have determined that investment in public loans has remained strong. On the other hand, the inclusive transformation has achieved good results. The local private economy in Wuxi is relatively developed, providing strong support for the company's “big inclusion” transformation. The balance of inclusive loans was +25% compared to the same period last year.
The net interest spread narrows slowly. The net interest spread at the end of '23 was 1.64%, a slight decrease of 2BP from the first half of the year and a decrease of 17BP from the end of '22. Looking at the breakdown, asset-side returns continued the downward trend, and the average interest rate for loans in '23 fell 11BP compared to 23H1. Cost savings on the debt side mainly supported net interest spread performance. Interest rates on deposits in '23 fell by 4BP compared to 23H1, mainly from savings time deposits. In the future, as the effects of the reduction in deposit listing prices gradually become apparent, and in conjunction with banks guiding customers to adjust savings deposit periods, debt costs are expected to continue to decline.
The quality of assets is excellent, and provisions are maintained at a high level. The defect rate at the end of 23 was 0.79%, a slight increase of 1 BP from the end of 22Q3, and a decrease of 2 BP from the end of '22. The absolute value of the defect rate was lower, or reflected the company's better risk control level.
At the end of 23, the provision coverage rate was 523%, and the provision safety pads were thick, providing strong support for profit growth.
Investment advice: The transformation of inclusiveness is good, and provisions remain high
The Bank of Wuxi is deeply involved in the local area. The good local economic foundation provides strong support for the transformation of the company's inclusive business. Inclusive loan investment is expected to maintain rapid growth; net interest spreads are resilient, and costs are expected to be further reduced by actively adjusting the deposit structure on the debt side; the financial investment strength is solid, other non-interest income maintains a high growth rate; the asset quality is excellent, the defect rate is low, and the safety cushion is strong. EPS for 24-26 is expected to be 1.10 yuan, 1.19 yuan, and 1.29 yuan, respectively. The closing price on March 29, 2024 corresponds to 0.5 times 24-year PB, maintaining the “recommended” rating.
Risk warning: Macroeconomic growth is declining; asset quality is deteriorating; the decline in net interest spreads in the industry exceeds expectations.