Incidents:
On March 29, the Bank of Wuxi released its 2023 annual report. It achieved annual revenue of 4.54 billion yuan, an increase of 1.3% over the previous year, and net profit to mother of 2.2 billion yuan, an increase of 10% over the previous year. The weighted average return on net assets (ROAE) was 11.48%, a year-on-year decrease of 1.5 pct.
Comment:
Revenue growth accelerated, while profit growth slowed slightly. The year-on-year growth rates of the Bank of Wuxi's revenue, profit before provision, and net profit to mother were 1.3%, -0.6%, and 10%, respectively. The growth rates changed 0.4, 3.1, and -6.2 pcts from the previous three quarters, respectively.
Among them, the growth rates of net interest and non-interest income were -0.8% and 8.5% respectively, with changes of -0.1 and 2.8 pct respectively from the previous three quarters.
Split profit growth structure: (1) Net interest income “is difficult to offset the decline in volume”. The extent to which scale contributed to the growth rate of performance slowed marginally, and the narrowing of interest spreads also weakened the drag on performance. (2) Non-interest revenue growth accelerated, and the driving effect on profit growth increased month-on-month. (3) The driving effect of provisions on performance growth weakened marginally. The annual risk cost (loss preparation/average total assets) was 0.29%, down 5 bps from the previous three quarters.
The scale is expanding steadily, and investment in public loans is booming. At the end of 2023, the Bank of Wuxi's total assets, interest-bearing assets, and loans grew at 11%, 10.9%, and 11.2%, respectively. They were all basically the same as at the end of the 3rd quarter, and the scale continued to expand steadily. In terms of loans, an increase of 1.9 billion dollars was added in the fourth quarter, an increase of 300 million over the previous year, and the share of interest-bearing assets increased 0.6 pct to 61% compared to the end of the 3Q period. At the structural level, public, retail, and notes were increased by 1.6, -5, and 900 million respectively in a single quarter, with year-on-year changes of 1.3, -500 million; year-on-year, public and retail sales increased by 12.1 billion and 500 million, respectively, an increase of 6.2 billion dollars and a decrease of 2.2 billion dollars over the previous year. The characteristics of “strong against the public and weak retail” are outstanding. Among them, for the public sector, manufacturing, leasing and commercial services, and approval added 41, 2.2, and 1.4 billion dollars respectively during the year 0, an increase of 8.3, 16.7, and 1.03 billion dollars over the same period last year, which is the main driving force for loan growth. In the retail sector, consumer loans and operating loans increased by 1.36 billion yuan and 1.04 billion respectively during the year, an increase of 0.1 billion and a decrease of 560 million yuan over the same period last year. Mortgage growth continued to be negative.
Deposit growth has slowed, and the trend of regularization continues. The year-on-year growth rates of Bank of Wuxi's total debt, interest payment liabilities, and deposits at the end of the year were 11.3%, 11%, and 12.4%, respectively, with changes of 1.3, 1.5, and -1.4 pct, respectively, from the end of the 3rd quarter. In the fourth quarter, deposits increased by 2.6 billion dollars, a year-on-year decrease of 1.8 billion dollars, and the share of interest-paying liabilities increased by 0.8 pct to 94% from the end of the 3Q period. In terms of terms of term, fixed term and current deposits increased by 216 billion yuan respectively during the 4Q quarter, representing a decrease of 2 billion and 900 million dollars respectively over the previous year. According to the average balance data, the average balance of term payments in '23 was 131.7 billion, growing at a rate of 16%, accounting for 70.3% of deposits, up 2.5 pct from '22, and the trend of regularization continues. Among them, the average personal term balance was 89.8 billion yuan, up 31% from '22, accounting for 48% of the average deposit balance, an increase of 6.8pct over the previous year. In terms of market-based liabilities, bonds payable and interfinancial liabilities increased by 900 million yuan and -2.3 billion respectively in a single quarter, an increase of 2.9 billion dollars over the previous year and a decrease of 1.6 billion dollars. Together, the share of interest-paying liabilities decreased by 0.8 pct to 6.4% compared to the end of the 3Q period.
NIM narrowed by 2bps to 1.64% compared to the first half of the year. On the asset side, Bank of Wuxi's loan yield during the year was 4.42%, down 11 bps from mid-year and 21 bps down from 2022. Affected by factors such as continuous reduction in LPR, insufficient effective demand, and increased competition among peers, the loan pricing operation was under pressure. On the debt side, the annual deposit cost ratio was 2.29%, down 4 bps from mid-year and down 1 bps from 2022. The effects of the reduction in early listing interest rates have been shown, and the company's annual deposit costs have steadily declined. Looking back, insufficient effective demand is compounded by LPR cuts, making it more difficult to reverse the downward trend in loan pricing; on the debt side, companies may strengthen cost control through structural adjustments and lower listed interest rates to ease the narrowing pressure on NIM.
The steady increase in investment income is driving the growth of non-interest income to accelerate. The company's annual non-interest revenue was 1.08 billion (YoY +8.5%), accounting for a decrease of 2pct to 24% from 1-3Q. Among them, (1) net revenue from processing fees and commissions was 130 million (YoY -42%), continuing the negative growth trend. The share of non-interest income fell by -1.9pct to 12% from the previous three quarters, mainly driven by a negative increase in agency service fees. (2) Net other non-interest income of $155 million (YoY +23.4%), accounting for 88% of non-interest income, remains the main support for non-interest growth. Among them, investment income of 700 million yuan (YoY +11.5%) accounted for an increase of 7 pct to 75% of net other non-interest income compared to the previous three quarters.
The defect rate increased slightly from the end of the 3rd quarter, and provision coverage remained high. At the end of 2023, the Bank of Wuxi had a non-performing rate of 0.79%, up 1 bps from the end of the 3rd quarter and down 2 bps from the beginning of the year, and remained at a historically low level. The year-end overdue rate and attention rate were 0.66% and 0.42%, respectively, down 5 bps from the beginning of the year and up 11 bps, respectively. The forward-looking indicators fluctuated slightly but were still at a low level. The bad balance at the end of the year was 1.1 billion, an increase of 90 million yuan for the whole year, an increase of 150 million over the same period last year. The pressure on bad generation increased, and write-off efforts declined slightly. Credit impairment losses during the year were 650 million yuan, an increase of 170 million dollars less than in 2022, corresponding to the annual risk cost of 0.29%, a decrease of 11 bps from the previous year, and the intensity of provision calculation decreased. At the end of the year, the company's loan ratio and provision coverage rate were 4.11% and 523% respectively, down 0.14 and 24.8pct from the end of the 3Q period. However, the company's overall risk compensation capacity was strong, and there was plenty of room for provision to feed back profit.
The safe margin of capital adequacy increased, and the increase in insurance shareholders' holdings showed confidence in the company's development. At the end of the year, the company's core level 1, level 1, and capital adequacy ratios were 11.3%, 12.5%, and 14.4%, respectively, up 0.2 pct from the end of the 3rd quarter.
The risk-weighted asset growth rate at the end of the quarter was 6.75%, down 0.14pct from the end of the previous quarter. The company's previous 3 billion convertible bonds expired on January 30, 2024. The cumulative share capital was increased by 315 million yuan, increasing the company's core Tier 1 capital. The relatively abundant capital reserves provided a certain guarantee for the company's subsequent scale expansion. At the same time, since the beginning of the year, the company's shareholder Great Wall Life has successively increased its holdings by 34.33 million shares through secondary market holdings and convertible debt-for-equity swaps. As of January 19, Great Wall Life held 139 million shares, accounting for 6.36% of the company's total share capital. The increase in shareholders' holdings shows recognition of the company's value and confidence in future development. In recent years, the company's cash dividend ratio has basically remained around 21%. As of the close of trading on March 29, the company's dividend rate was 3.89%, which is comparable to that of the industry.
Profit forecasting, valuation and ratings. The Bank of Wuxi is deeply involved in the local Sannong small and micro market in Jiangsu, and continues to benefit from regional economic development dividends. In 2023, the company entered the new three-year development planning stage. The core ideas still focus on big retail and digital transformation, focusing on the three sub-strategies of human resources, small agricultural support, and scientific and technological innovation. It acts as a “ballast stone” for public business, focusing on small and micro private enterprises, manufacturing, etc., while retail business favors high-yield loans such as mortgages and consumer loans. At the same time, the company has a clear asset quality advantage, a relatively low share of focused loans, sufficient reserves, and plenty of room for performance release. However, considering that insufficient demand for effective financing has not been mitigated, NIM is still operating under pressure, dragging down the company's revenue and performance. Based on the 2023 annual report, we adjusted the company's 2024-25 EPS forecast to 1.08 and 1.16 yuan (previous values were 1.26 and 1.48 yuan), and added the 2026 EPS forecast of 1.26 yuan. The PB valuation corresponding to the current stock price is 0.54, 0.49, and 0.45 times, respectively, and the corresponding PE valuation is 4.77, 4.43, and 4.07 times, respectively, maintaining the “buy” rating.
Risk warning: The economic recovery process fell short of expectations, the decline in the customer base of major banks intensified, and interest rates on small and micro loans declined more than expected.