Quarterly Report Overview: Interest spreads in a single quarter rebounded month-on-month, and net profit maintained a positive increase. Interest spreads rebounded sequentially in the first quarter of 2024 due to contributions from the debt side, which led to a narrowing of the revenue decline by 0.2 percentage points to -0.4%; the company's cost control efforts continued to increase, and the PPOP growth rate changed from negative to positive to 0.2%. The quality of the company's assets remained stable, and the year-on-year growth rate of net profit increased by 0.7% to 1.4%.
Net interest income: Q1 net interest income was +3.9% month-on-month, with net interest spreads rebounding in the first quarter, mainly due to debt-side contributions.
The 1Q24 quarterly annualized interest spread was 1.26%, an increase of 3 bps over the previous quarter, mainly due to debt-side contributions. Asset-side returns fell 7 bps to 3.46% month-on-month, and loan yields declined in the first quarter due to factors such as heavy pricing and LPR cuts; the decline in interest rates on debt-side deposits began to take effect, and interest rates fell 9 bps to 2.32% month-on-month, effectively hedging downward pressure on the asset side.
Asset and liability growth rate and structure: The growth rate of deposits and loans slowed down due to smooth credit investment. 1) Credit: In total, the Bank of Communications added 662.12 billion yuan in credit investment for the full year of 2023, and an increase of 734.57 billion yuan for the full year of 2022; the scale of investment in a single quarter of 2024 was 246.14 billion yuan, which is 36.3% less than the same period last year, mainly due to the fact that last year's overall credit investment was more advanced, and the pace has slowed down this year under the guidance of smooth credit regulations. Structurally, investment in the first quarter was mainly for the public sector, with 2534.4/286.6/-35.96 billion yuan in public/personal/bill loans respectively, accounting for +1.4%/0%/-0.3% of interest-bearing assets, which varied from +1.4%/0%/-0.3% to 38.9%/17.9%/1.9%. 2) Deposits: Bank of Communications added 566.4 billion dollars in deposits for the full year of 2023, 880.79 billion yuan for the full year of 2022, and 276.51 billion yuan in the first quarter of 2024. Under the high base of the same period last year, there was a year-on-year decrease, accounting for an increase of 0.6 percentage points to 68.1% of interest-bearing liabilities.
Asset quality: The overall quality of assets remains stable. 1. Defect dimension - the defect rate is steadily declining. In 1Q24, Bank of Communications's non-performing ratio was 1.32%, down 0.01% from the previous month. The cumulative annualized net bad generation rate increased by 10 bps to 0.63%. It is still low, and the overall asset quality remains stable. In terms of future negative pressure, the share of concerned loans was 1.53%, a slight increase of 2 bps over the previous month. 2. Overdue dimension - the overdue rate has increased. The 1Q24 overdue rate increased by 1 bp to 1.39% month-on-month. 3. Provision dimension - Provision remains stable. The provision coverage rate for the first quarter fell 0.64 percentage points month-on-month to 197.05%; the loan ratio declined 3 bps month-on-month to 2.60%.
Investment suggestions: Company 2024E, 2025E, 2026E PB 0.53X/0.49X/0.46X; PE6.75X/6.58X/6.42X. As a pilot testing ground for reform, the Bank of Communications is the only major state-owned bank rooted in the Yangtze River Delta. The company is based in Shanghai, and its revenue and profit are steadily increasing, and the scale of its capital is expanding at an accelerated pace. Loans are invested in actively supporting entities, reflecting the responsibility of major banks. Asset quality indicators are constantly improving. Covered for the first time, a “gain” rating was given.
Risk warning: The economic downturn exceeded expectations, the company's operations fell short of expectations, and research information was not updated in a timely manner.