Introduction to this report:
Bank of Communications achieved slight positive growth in revenue and net profit in 2023, and asset quality remained steady and consolidated to a successful conclusion of the year. In view of the valuation shift, the target price was raised to 7.2 yuan to maintain the incremental rating.
Key points of investment:
Investment advice: According to the 2024 credit volume and price trend forecast, the 2024-2026 net profit growth rate forecast is 0.7%, 3.2%, and 4.9%, corresponding to EPS of 1.16 (-0.06), 1.20 (-0.11), and 1.26 (new) yuan/share. The corresponding BVPS is 13.08 (-0.01), 13.90 (-0.11), and 14.77 (new) yuan/share. The target price was raised to 7.2 yuan, corresponding 0.55 times PB in 2024, and maintaining an increase in holdings rating, taking into account the valuation shift and stable dividend ratio.
The year-on-year decline in 23Q4 revenue and net profit to mother was narrower than in Q3. Mainly due to the bullish bond market in a low interest rate environment, other non-interest income boosted revenue. Affected by stock mortgage interest rate adjustments, etc., the 23Q4 net interest spread fell 5 bps to 1.22% month-on-month, and the annual interest spread narrowed by 20 bps. Looking ahead to 2024, there is a possibility of further loan repricing and potential interest rate cuts. The trend of deposit fixed-term deposits has not improved substantially. It is expected that net interest spreads will remain low and weigh on annual revenue.
Deposits and loans increased by 7.6% and 9.1% respectively in 2023 compared to the beginning of the year. On the deposit side, current accounts declined by 1.8 pct to 34.4% compared to the beginning of the year, and the decline in corporate demand deposits was even more obvious. On the loan side, it will take time for demand for mortgages and credit cards to recover. Operating loans traded price for volume, and the balance increased by 43% compared to the beginning of the year. Loan growth is expected to remain flat in 2024, growth will slow, and deposit competition will intensify.
Asset quality at the end of 23Q4 fluctuated slightly compared to the end of Q3, mainly due to new financial asset risk classification regulations and pressure on the retail loan industry, but there was still an improvement compared to the beginning of the year. The non-performing ratio of public real estate loans at the end of the period was 4.99%. The provision is significantly higher than other loans, and the risk is more manageable.
Risk warning: Demand recovery was weaker than expected, and structural risk exposure exceeded expectations.