Minsheng Bank's 3Q23 revenue growth rate was -2.1%, and net profit growth rate was -0.6%, all of which bucked the trend and improved from the first half of the year.

Asset quality has improved. The 23Q3 non-performing loan ratio is 1.55%, and the focus loan ratio is 2.67%, all of which are down from the beginning of the year. The net interest spread for 3Q23 was 1.48%, down 14BP from the previous year, and the decline was better than the average of peers. Due to the current low valuation, the operating performance may improve. We raised the rating of Minsheng Bank to “Highly Recommended”; we gave it 0.4 times the target valuation for 23 years, corresponding to the target price of 4.85 yuan.

Incident: On the evening of October 30, Minsheng Bank disclosed its 3Q23 results: operating income of 106.304 billion yuan, YoY -2.1%; net profit of 33.577 billion yuan, YoY -0.6%; weighted average ROE of 7.55%. As of the end of September 2023, the asset size was 7.51 trillion yuan, and the non-performing loan ratio was 1.55%.

There was a marginal improvement in the performance of the three quarterly reports. The 3Q23 revenue growth rate was -2.1%, up 1.5 percentage points from the first half of the year, improving against the trend; the net profit growth rate was -0.6%, up 2.9 percentage points from 1H23. Among A-share listed stock banks, Minsheng Bank ranked third in revenue growth in the first three quarters, and was one of the few listed banks whose profit growth rate increased compared to the first half of the year.

Since 2021, asset quality indicators have continued to improve. The 23Q3 non-performing loan ratio was only 1.55%, down 13BP from the beginning of the year; focus on the loan ratio of 2.67%, down 22BP from the beginning of the year. 23Q2 overdue loan ratio is 2.00%.

2018-1H23 wrote off and transferred a total of 305.4 billion yuan of non-performing loans, and disposed of more than 300 billion yuan of problematic assets since 2020. The percentage of historical bad burdens cleared is high, and risk appetite for asset investment has declined markedly since 2020. Asset quality is expected to continue a steady, moderate and positive trend in the future. However, the real estate industry remains sluggish, and asset quality is still facing challenges in 2024. The provision coverage rate for 23Q3 was 149.2%, and the loan ratio was 2.32%. The provision coverage rate increased from the beginning of the year.

Interest spreads fell better than their peers, and interest spreads may bottom out in 2024. Since 2020, net interest spreads have dropped sharply from 2.14% in 2020 to 1.48% of 1H23 due to a sharp decline in operating risk appetite and lower LPR.

The net interest spread for 3Q23 was 1.48%, down 14BP from the previous year, and the decline was better than the average of peers. Net interest spreads are expected to be under slight pressure in 2024 due to lower interest rates on stock mortgages, etc., but they may bottom out and stabilize.

As interest rates on stock mortgages are lowered and risks in the real estate industry are still in the process of being cleared, we expect business performance to be under slight pressure in 2024. However, thanks to vigorous disposal of problematic assets since 2020, the pressure on asset quality may have exceeded 10,000 mountains, and business performance is expected to reach an inflection point. In 23Q3, the number of retail customers of Minsheng Bank reached 128 million, and retail AUM reached 2.71 trillion yuan. The retail customer base is relatively good. Due to the current low valuation, the operating performance may improve. We raised the rating of Minsheng Bank to “Highly Recommended”; we gave it 0.4 times the target valuation for 23 years, corresponding to the target price of 4.85 yuan.

Risk warning: the economy has declined beyond expectations, asset quality has deteriorated; financial concessions, interest spreads have narrowed, etc.