Performance review
2022 & 1Q23 results are in line with our expectations
Bank of Guiyang announced 2022 and 1Q23 results: 1Q23 operating income, profit before provision, and net profit of Fumo increased 3.1%, 2.4%, and 1.1%, respectively; 2022 operating income, profit before provision, and net profit of Guimu increased 9.8%, 13.2%, and 1.0% year-on-year respectively. The performance was in line with our expectations.
Development trends
The scale of the business continued to grow steadily. At the end of 1Q23, Bank of Guiyang's assets, loans, and deposits increased 6.5%, 13.5%, and 8.3% year on year; at the end of 2022, Bank of Guiyang's assets, loans and deposits increased 6.1%, 11.9%, and 6.6%, respectively. The growth rate of corporate loans was higher than the growth rate of assets. At the end of 1Q23, the share of loans in total assets increased by 2.8 ppt to 43.1% year-on-year, and the share of interbank assets dropped somewhat. In terms of debt, the share of deposits at the end of 1Q23 increased by 1.3ppt to 67.7%, and the size of bonds payable declined.
Net interest spreads declined month-on-month. According to our estimates, Bank of Guiyang's net interest spread for 1Q23 fell 44 bps to 2.33% month-on-month, and the return on interest-bearing assets and the cost ratio of interest-paid liabilities changed -22bp and 2bp respectively. The main reason for the month-on-month decline in asset-side returns was the centralized repricing of loans and lower interest rates on newly issued loans in the first quarter; the increase in the share of term deposits in the deposit structure also led to higher debt cost ratios.
Non-interest income declined year over year. In 1Q23, the company's non-interest income decreased 26.9% year on year. Among them, net fee revenue decreased by 31.7% year on year, and other non-interest income decreased by 22.4% year on year. The decline in fee revenue in the first quarter was in line with the 2022 trend, mainly due to the company's implementation of fee reduction and concession policies.
The asset quality situation is relatively stable. By the end of 1Q23, Guiyang Bank's loan non-performing rate and interest rate were 1.49% and 3.24% respectively. The non-performing rate decreased by 4 bps from the end of 3Q22, and the attention rate increased 63 bps from the end of 3Q22. At the end of 2022, the company's overdue loans and loans overdue for more than 90 days accounted for 2.67% and 1.19%, down 32 bps and 14 bps respectively over the previous year. At the end of 1Q23, the provision coverage rate was 260.3%, which has remained stable in recent quarters.
Profit forecasting and valuation
Since the company's net interest spread and non-interest income performance fell short of expectations, and the fall in 2023E provisions supported net profit growth to a certain extent, we kept our 2023E profit forecast unchanged and lowered the 2024E profit forecast by 5.7% to $6.332 billion. The current stock price corresponds to 0.4 times the 2023E net market ratio and 0.3 times the 2024E net market ratio. Maintaining the outperforming industry rating and target price unchanged, corresponding to 0.4 times the 2023E net market ratio and 0.4 times the 2024E net market ratio, there is room for an increase of 8.9% compared to the current stock price.
risks
Asset risks fell short of expectations, and regional credit demand fell short of expectations.