Incidents:
On January 29, the Bank of Qingdao released its 2023 performance report, achieving operating income of 12.47 billion yuan, an increase of 7.1% over the previous year, and a net profit of 3.55 billion yuan, an increase of 15.1% over the previous year. The annualized weighted average return on net assets was 10.7%, up 1.8 pct from the same period last year.
Comment:
Under the low base, the revenue growth rate increased markedly, and profit growth remained steady. The year-on-year growth rates of the company's revenue and net profit to mother in 2023 were 7.1% and 15.1%, respectively. Among them, the revenue growth rate increased by 5.3 pcts compared to 1-3Q23, and the profit growth rate declined slightly by 0.1 pct; 4Q single-quarter revenue and net profit growth rates were 30.8% and 14.8% year-on-year, up 58.9 and 18 pcts, respectively. The company's revenue growth rate increased markedly, and the profit growth rate remained steady, mainly due to:
① The growth rate of net interest income has generally remained steady. Although the reduction in stock mortgage interest rates has caused a certain drag, considering that the company's mortgage loans account for less than 10% of interest-bearing assets, the impact is estimated to be 1 to 2 bps, and the significant acceleration of the company's expansion can achieve better hedging; ② The decline in interest rates in the bond market may drive bond valuation income to achieve better growth. Affected by rising interest rates in the bond market in 22Q4, the company's non-interest income growth rate fell 44.7pct to -3.9% month-on-quarter, while the 23Q4 ten-year treasury bond interest rate fell 17 bps from a high of 2.72% to around 2.55%. The decline in interest rates in the 23Q4 bond market is compounded by a low base. The company's investment income and fair value change profit and loss are expected to be significantly better than the same period last year. In addition, the company's integrated operation with “rent plus financial management” as the two wings also provides good support for rival renewal revenue.
③ The provision schedule has been strengthened or improved. The growth rate of the company's operating expenses in 2023 was 7.8pct to 0.4% compared to 1-3Q23. Considering the increase in the company's 23Q4 bad confirmations, it is expected that the increase in reserves will increase.
Credit growth has continued to be high, and the allocation of non-credit assets has been strengthened. In 23Q4, the total assets added by the company in a single quarter were 26.8 billion yuan, an increase of 28.5 billion yuan over the previous year. The total assets growth rate was 14.8% year over year, up 5.4 pcts from the end of the 3rd quarter. Among them, loan and non-credit asset additions were 2.5 billion and 24.3 billion yuan respectively; the balance of loans and non-credit assets grew by 11.5% and 18.2% year on year, respectively, and the balance of loans and non-credit assets increased by 1.4 and 9.5 pct, respectively, from the end of the 3rd quarter.
While maintaining a high level of corporate credit investment, it has increased its allocation of non-credit assets, driving a significant increase in the speed of table expansion. The Bank of Qingdao focuses on the three-year action plan and low-carbon development of a strong manufacturing province in Shandong Province. At the end of 23Q3, manufacturing loans and green loans increased by 46.2% and 30% respectively compared to the beginning of the year, far higher than the 10.6% increase in general loans. With the support of the provincial strategy, it is expected that the company's loan growth schedule for 2024 is generally optimistic, and credit investment in key areas such as manufacturing, green, and inclusiveness is expected to maintain a high level of prosperity, supporting the company's performance.
Deposit growth is better than loans, and market debt absorption is increasing. In 23Q4, the company added 6.8 billion dollars in a single quarter, a year-on-year decrease of 2.7 billion dollars. The deposit balance growth rate was 13.1% year-on-year, 1.2 pct lower than at the end of 3Q; the deposit-to-loan ratio was 77.7%, down 0.7 pct from the end of the 3Q period. Although the company's deposit growth was less than that of the same period last year, it was relatively better than loans. The deposit-to-loan ratio improved, and the deposit and loan sector had a good match between the sources of funds and the use of funds. At the same time, in order to match the sharp expansion of non-credit assets, the company is increasing its absorption of market liabilities.
The defect rate declined by 3 bps to 1.18% from the beginning of the year, which is at an historically low level. At the end of 23Q4, Bank of Qingdao's non-performing loan balance was 3.5 billion yuan, up about 150 million from the end of the 3Q; the non-performing loan ratio was 1.18%, up 4 bps from the end of 23Q3; the provision balance decreased by 630 million to 8 billion yuan from the end of 3Q, and the provision coverage rate decreased by 28.7 pct to 226% from the end of 3Q. The company's 4Q bad confirmations have increased, and the non-performing loan ratio has risen, but it is still down 3 bps from the beginning of the year, and the non-performing loan ratio is still at an all-time low.
Profit forecasting, valuation and ratings. 2023 marks the beginning of the Bank of Qingdao's new three-year (2023-2025) strategic plan. The next three years will focus on the four strategic themes of “restructuring, strong customer base, excellent collaboration, and capacity improvement”, and make every effort to build a value-leading bank with “leading quality and efficiency, distinctive features, and flexible mechanisms”. Bank of Qingdao's credit investment in 2023 was steady, the asset structure continued to be optimized, and both revenue and profit maintained relatively rapid growth, and achieved a good start. At the same time, the Bank of Qingdao was among the first commercial banks in the city to establish financial management subsidiaries. The asset scale managed by Qingyin Wealth Management had already exceeded 200 billion dollars by the end of last year, and the wealth management business has strong potential for improvement. Maintaining the company's 2023-2025 EPS forecast of 0.60/0.69/0.79 yuan, the current stock price is 0.59/0.54/0.49 times the corresponding PB valuation, respectively, maintaining the “buy” rating.
Risk warning: The downward pressure on the macroeconomic economy is increasing, and credit tolerance falls short of expectations.