Bank of Beijing (601169): Asset quality is improving at an accelerated pace

中金公司 ·  04/29  · Researches

Performance review

1Q23 performance fell short of our expectations

The Bank of Beijing announced 1Q23 results: 1Q23 revenue fell 6.9% year on year, net profit increased 1.9% year on year; disclosure of weighted ROAE (after annualization) was 13.32%; performance fell short of our expectations, mainly due to the high base and bond market fluctuations in the same period last year, the year-on-year decline in fee revenue was higher than our expectations.

Various asset quality indicators have been improved at an accelerated pace, and risk management and control work continues to bear fruit.

Development trends

Scale expansion continues to accelerate. At the end of 1Q23, the total assets of the Bank of Beijing increased 11.5% year on year, total loans increased 8.6% year on year, and deposit balance increased 8.4% year on year. The size of personal loans increased 9.2% year-on-year at the end of 1Q23, and corporate loans (excluding discounts) increased 9.81% from the beginning of the year. By region, the company consolidated the “home advantage” of the Beijing region. At the end of 1Q23, Beijing loans increased 9.3% year-on-year; at the same time, the Yangtze River Delta increased its investment in public credit. The balance of public loans (excluding discounts) in the Yangtze River Delta region increased by 33.1% compared to the beginning of the year.

Interest spreads from exercise under asset-side pricing narrowed month-on-month. We estimated the net interest spread on the average balance of the Bank of Beijing at the beginning and end of a single quarter in 1Q23 to 1.48%, a decrease of 5 bps over the previous quarter; the return on interest-bearing assets fell 4 bps to 3.41% month-on-month, mainly affected by loan repricing and downward market interest rate pivots. The company is accelerating retail transformation and establishing a “full life cycle” financial service system for child finance, growth finance, venture finance, household finance, wealth finance, and pension finance. The balance of personal operating loans and consumer loans accounted for 46% at the end of 1Q23, and interest spreads on retail deposits and loans increased by 33 bps to 3.53% compared to the beginning of the year. We expect that as the share of high-yield personal loans and the share of low-cost savings deposits increase, the decline in net interest spreads may narrow quarter by quarter.

Net income from fees is affected by a high base and fluctuations in the bond market. Net income from 1Q23 handling fees fell 53.1% year-on-year. On the one hand, this was due to the high base factor that confirmed one-time disposal income during the rectification of the new asset management regulations in 1Q22, and on the other hand, the scale rate of financial management and consignment sales declined due to market fluctuations. Other non-interest income increased 45.7% year over year, with profit and loss from changes in fair value increasing by 622 million yuan to 17 million yuan over the same period last year.

Asset quality is improving at an accelerated pace. At the end of 1Q23, the Bank of Beijing's non-performing rate fell 7 bps to 1.36% month-on-month. We estimate that the non-performing loan generation rate (0.01%) remained low, and the provision coverage rate increased 7 ppt to 217.0% month-on-month, and it continues to be on the improvement channel. Since 2019, the company has continued to promote the clearance of non-performing goods, and asset quality has been continuously consolidated; risk management and control have been continuously strengthened. In 1Q23, bad generation decreased 18.4% year-on-year; it sought benefits from special assets and recovered 1.49 billion yuan of loans written off in the previous year, an increase of 337.5% over the previous year.

Profit forecasting and valuation

Considering the impact of the high fee revenue base in 2022, we lowered our 2023 net profit by 1.3% to 26.4 billion yuan; we basically kept our 2024 profit forecast unchanged. The current stock price corresponds to the 2023/2024 net market ratio of 0.4 times/0.4 times. Maintaining an outperforming industry rating and a target price of 5.80 yuan, corresponding to the 2023/2024 net market ratio of 0.5 times/0.5 times, there is room for an increase of 22.4% from the current stock price.


Asset quality improvements fell short of expectations.

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