Core views:
The Bank of China released its 2023 annual report: revenue, PPOP, and net profit to mother increased by 6.4%, 3.5%, and 2.4% year-on-year respectively. The growth rates were -0.64pct, -0.22pct, and +0.82pct respectively from 23Q1 to 3. Judging from the cumulative performance driver, growth in scale, non-interest income, and cost-to-revenue ratio are the main positive contributions, and the narrowing of net interest spreads has caused a certain drag.
Highlights: (1) The scale of credit has remained high. The year-on-year growth rate of interest-bearing assets in '23 was 12.8%. Among them, the loan size increased by 13.7%, up 0.3 pct from 23Q1 to 3. The main incremental contribution came from the public, focusing on supporting scientific and technological innovation, advanced manufacturing, green development, and micro, small and medium-sized enterprises; the decline in the size of interbank assets in '23 may be affected by new capital regulations. (2) The defect rate is stable, and the provision coverage rate has increased. The company's non-performing rate at the end of 23 was 1.27%, the same as at the end of 23Q3. Among them, the non-performing ratio for personal loans rose 1 bp to 0.76% from the end of 23Q2, fell 13 bps from the end of 23Q2, and the bad rate in key industries such as manufacturing and infrastructure improved. The real estate defect rate rebounded 40 bps to 5.51% from the end of 23Q2, focusing on subsequent risk exposure. The company's new bad generation rate in 23 was 0.54%, the same as the previous year. The provision coverage rate was 205.29%, an increase of 10 pcts compared to the end of 23Q3, and the provision of safety pads was further strengthened. (3) Handling fees are growing. The company's net revenue from fees and commissions increased 5.3% year on year in '23, and the performance was better than that of its peers. Under pressure from agency business growth, the company increased its business development efforts and achieved good results in consulting, trusteeship and bank card businesses. (4) Decrease in cost to revenue ratio. The company continued to strengthen cost management and optimize the expense structure. The cost-revenue ratio in '23 was 28.5%, a year-on-year decrease of 0.42pct.
Attention: (1) Increased attention rate and overdue rate. At the end of 23, the attention rate and overdue rate were 1.46% and 1.06%, respectively, up 23 bps and 9 bps from the end of 23Q2, focusing on subsequent risk exposure. (2) Interest spreads have narrowed. Net interest spread for '23 was 1.59%, down 5bp/16bps from 23Q1-3/22. On the asset side, due to factors such as heavy pricing, declining new interest rates, and repricing of stock mortgages, etc., loan yields declined a lot. The company optimized the asset structure and increased the share of medium- and long-term loans, and the overall decline was less than that of peers; on the debt side, the cost ratio for all types of RMB deposits generally declined in 23, and the cost ratio for official term and personal time deposits declined by 17 bps and 23 bps, respectively. However, due to deposit pricing and a sharp increase in the cost ratio of foreign currency deposits, deposit costs remained rigid. At the same time, the tightening of capital was driving up and down active debt costs. Continued rise for half a year 5 bp.
Profit forecast and investment advice: The net profit growth rate for 24/25 is expected to be 1.07%/1.53%, EPS is 0.75/0.76 yuan/share, respectively. The current stock price corresponds to 24/25 PE 5.8X/5.7X, respectively, and the corresponding 24/25 PB is 0.54X/0.50X, respectively. Referring to industry valuations, keep the company's reasonable value of 5.30 yuan/share unchanged, corresponding to the company's 24-year PB reasonable valuation of 0.65X. According to the current AH premium ratio, H shares have a reasonable value of HK$3.91 per share, all maintaining a “buy” rating.
Risk warning: (1) economic growth has declined beyond expectations; (2) rising deposit costs have exceeded expectations; (3) international economic and financial risks have exceeded expectations; (4) policy regulation has exceeded expectations.