招商银行(600036)2023年一季报点评:零售弱修复 不良生成速度放缓

China Merchants Bank (600036) 2023 Quarterly Report Review: Weak Retail Remediation and Poor Growth Slows Down

安信證券 ·  04/26  · Researches

Incident: China Merchants Bank announced the first quarter report of 2023. The revenue growth rate was -1.47%, the profit growth rate before provision was -3.93%, and the net profit growth rate of the mother was 7.82%, which is basically in line with market expectations. Our comments are as follows:

In the first quarter of this year, China Merchants Bank's performance growth was mainly driven by scale expansion and a year-on-year reduction in funding pressure, while net interest spreads narrowed markedly year over year, non-interest income growth slowed, and cost expenditure accelerated, which dragged down profit growth.

1. The pace of scale expansion is accelerating. China Merchants Bank's interest-bearing assets (average daily balance) increased 11.3% year-on-year in the first quarter of this year, up 1.2 percentage points from the 2022-Q4 growth rate, which supported the increase in net interest income. The growth rate of loans and investment assets both increased. Judging from the scale of new interest-bearing assets added in a single quarter, credit was added 178.6 billion yuan, an increase of 45.2 billion yuan over the previous year; investment assets were added 212.2 billion yuan, an increase of 117.9 billion yuan over the previous year. The advanced asset investment layout relieved the downward pressure on net interest spreads through the logic of “making up for prices with volume”.

Further dismantling the credit structure, we used China Merchants Bank's own caliber data for analysis. At the end of the first quarter of this year, CMB generally saw a large increase in the year-on-year growth rate of public loan balances, and retail credit growth bottomed out. Looking at it from a new perspective, in Q1 of this year, CMB added 252.4 billion yuan in credit, an increase of 82.2 billion yuan over the same period last year, which was also slightly better than the same period in 2021. On the one hand, in an environment where demand for infrastructure credit was strong and demand for operating capital from the real enterprise sector slowly rebounded, the addition of general public loans increased by 91.4 billion yuan over the same period last year; on the other hand, the addition of retail credit of 75.4 billion yuan was clearly superior to the first quarter of last year, but weaker than the same period in 2021. Among them, small and micro loans and consumer loans recovered the best, with negative growth in mortgage loan balances. It is expected to be mainly the impact of early loan repayments; credit card loans are also recovering year over year and month over month.

2. Net interest spreads declined month-on-month. In the first quarter of this year, CMB's net interest spread was 2.29%, down 8 bps from month to month. It was basically in line with market expectations. It fell 22 bps year on year, dragging down net interest income growth.

① Asset-side returns fell 2 bps month-on-month. Previously, the market expected that under the influence of loan repricing, CMB's asset side, especially credit yield, would drop significantly from month to month, but judging from the actual situation, it was clearly better than market expectations. Among them, loan yield fell only 5 bps month-on-month in the first quarter. It is expected that it mainly benefited from continuous optimization of the interest-bearing asset structure, and that high-yield retail credit investment resumed; the return on investment assets increased 3 bps month-on-month, which is expected to benefit mainly from the impact of a slight increase in market interest rates at the beginning of the year, which also drove a clear improvement in interbank asset returns.

② The debt cost ratio increased 6 bps month-on-month. Affected by increased competition in the deposit market, the trend of deposit regularization still exists. Since the first half of 2021, the ratio of China Merchants Bank's current account balance to the average daily balance of customer deposits has gradually declined, from 64.7% to the current 60.1%, driving up the deposit cost ratio. In the first quarter of this year, the deposit interest rate increased 4 bps month-on-month. Furthermore, under the influence of rising market capital interest rates, interbank debt costs have also risen slightly month-on-month.

③ Taken together, pressure on debt-side costs caused CMB's net interest spread to fall month-on-month, which is quite different from the “decline in yield brought about by asset-side heavy pricing” expected by the market. Looking ahead, net interest spreads in the banking industry as a whole may still face downward pressure, but the range may gradually narrow. Considering the high base of net interest spreads last year, net interest income growth is likely to slow down.

3. The sharp slowdown in the growth rate of the middle income has dragged down revenue. In the first quarter of this year, the growth rate of China Merchants Bank's net income from fees and commissions was -12.6%, down 12.4 percentage points from last year's growth rate. Let's take a look specifically:

① Revenue from the wealth management business continued to decline year over year. Revenue from agency funds, trusts, and financial management all declined somewhat year-on-year. The agency insurance business developed very well last year. Under the high base effect, the growth rate of related revenue also slowed this year.

② The first quarter of this year was in a state of recovery after the epidemic. The recovery in consumer activity in the market was not particularly strong. The volume of credit card transactions was also affected, leading to weak growth in bank card revenue.

③ Furthermore, the growth rate of settlement and clearing fee revenue and escrow business revenue has also slowed down compared to last year.

4. Other non-interest net income fared better than expected. In the first quarter of this year, the growth rate of CMB's other non-interest net income was 14.9%. Mainly, investment income from bonds and funds increased, which outperformed its peers.

5. The cost to revenue ratio increased year over year. In the first quarter of this year, China Merchants Bank's cost-to-revenue ratio was 27.59%, an increase of 1.5 percentage points over the previous year. The main thing is that the Group insisted on investing in fintech construction, continuously consolidating the technological foundation, maintaining the scale of investment in digital infrastructure construction and R&D personnel, and accelerating the pace of digital transformation. Costs and expenses have accelerated, and profits before provision has been lowered.

6. Bad generation has slowed down, and asset quality has improved. To facilitate data comparison, the following content is analyzed from China Merchants Bank's own perspective. ① At the end of the first quarter of this year, CMB's non-performing rate remained flat month-on-month, with the retail credit non-performing rate falling 1 bps month-on-month. As the basis for stabilizing economic activity continues to be consolidated, interest rates and overdue rates for various loans have declined from the end of last year.

② Judging from the net generation of non-performing loans (annualized) at the beginning of the year in the first quarter of this year, the net generation rate of non-performing loans (annualized) was 1.09%, down 7 bps from the previous year and 8 bps from the previous month. Among them, there was a decline in bad generation of public credit and retail credit (excluding credit cards), and the pace of bad generation of loans in the real estate sector slowed down year on year. However, the net generation of bad credit cards remains at a high level, indicating that the willingness and ability of retail customers to repay has not clearly recovered.

③ CMB's credit impairment losses increased 49.6% year-on-year in the first quarter, while the calculated non-credit impairment losses were drastically reduced year-on-year. The main thing was that the scale of assets purchased and resold decreased compared to the end of the previous year. Changes in the impairment loss calculation structure drove a year-on-year decline in credit costs under CMB's broad perspective, supporting profit growth.

7. The growth rate of retail business has remained steady. Benefiting from the recovery in the capital market, the growth rate of CMB's retail customers and the decline in AUM growth have gradually narrowed, and the growth rate of some indicators has remained steady. This also provides an opportunity for future retail business growth and wealth management revenue growth.

Investment advice: Looking ahead to 2023, the negative factors suppressing China Merchants Bank's fundamentals are clearly mitigating. As consumption recovers and real estate policies become stronger, the advantages of China Merchants Bank's retail business and improvements in real estate credit risk will positively drive fundamentals. We expect the company's revenue growth rate to be 3.99% and profit growth rate to be 12.50% in 2023. Giving Buy-A investment rating, the target price for 6 months is 48.6 yuan, which is equivalent to 1.3XPB in 2023.

Risk warning: macroeconomic recovery falls short of expectations

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