Core views:
Bank of Communications released its 2024 quarterly report: 24Q1 revenue, PPOP, and net profit to mother increased by -0.03%, 0.2%, and 1.4% year-on-year respectively, and the growth rates changed by -0.34pct, 1.90pct, and 0.76pct, respectively, from '23. Driven by cumulative performance, growth in scale, provision and reduction in the cost-to-revenue ratio are the main positive contributions, and factors such as narrowing net interest spreads, non-interest income, and effective tax rates are a drag.
Highlights: (1) Interest spreads rebounded month-on-month in a single quarter. The company's 24Q1 net interest spread was 1.27%, down only 1 bps from '23, but up 5 bps from the 23Q4 single quarter. Looking at both sides of the asset side, the asset side faces multiple pressures such as repricing of stock loans and declining interest rates. It is expected that the month-on-month recovery in interest spreads in a single quarter will mainly be contributed by the debt side. On the one hand, 24Q1 deposits increased 2.1% year-on-year, increasing 128.7 billion yuan in a single quarter. Public deposits continued to shrink, but the overall deposit structure continued to be optimized, and the share of current deposits continued the upward trend at the end of 23, relieving the pressure on the debt side to a certain extent; on the other hand, since 24, liquidity has been relaxed, market interest rates have declined, and active cost rates have declined somewhat. (2) Asset quality is generally stable. The company's 24Q1 non-performing ratio was 1.32%, down 1 bps from '23. Among them, the non-performing ratio for public loans decreased by 7 bps compared to '23, and the non-performing ratio for personal loans rose 9 bps from '23, mainly because the non-performing rate for credit card loans increased. According to estimates, the company's 24Q1 defect generation rate is 0.50%, which remains stable, and the control of new defects is effective.
The provision coverage rate at the end of 24Q1 was 197.05%, up 1.8 pct from '23, and provision for safety pads was stable.
Concern: (1) Credit card overdue rates continue to rise. As a forward-looking credit risk indicator, the overdue rate is a good indicator of future changes in the bad rate. The company's credit card overdue rate increased in '23, the 24Q1 credit card non-performing rate rose by 27 bps, the 24Q1 credit card overdue rate continued its 23-year upward trend, and the 24Q1 credit card overdue rate continued to rise 61 bps from the end of '23, so we continue to monitor subsequent risk exposures. (2) Scale expansion is slowing down. The company's 24Q1 loans and deposits increased by 6.8% and 2.1%, respectively, over the same period last year, and both have slowed down. Under the development trend of “steady progress, steady and quality improvement”, both sides of the capital and debt were mainly based on structural adjustments. (3) Negative growth in non-interest income. Non-interest revenue grew negatively in 24Q1, and net processing fee revenue grew negatively by 6.4%, mainly affected by factors such as bank insurance channel fee cuts, interbank settlement business volume fluctuations, and a year-on-year decline in credit card default rates. Other non-interest income had a high base for the same period last year, and was affected by exchange rate fluctuations, with a negative 0.9% increase in 24Q1.
Profit forecast and investment advice: The net profit growth rate for 24/25 is expected to be 2.1%/2.6%, EPS is 1.17/1.21 yuan/share, respectively. The current stock price corresponds to the 24/25 PE of 5.83X/5.67X, respectively, and the corresponding 24/25 PB is 0.52X/0.49X, respectively. Maintaining the company's reasonable value of 8.56 yuan/share, corresponding to the 24-year PB valuation of 0.65X. According to the current AH premium ratio, H shares have a reasonable value of HK$6.74 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.