Key points of investment
Rui Fung Bank's revenue increased 15.3% year over year in 24Q1. Thanks to the narrowing of the month-on-month decline in interest spreads, there was a high increase in non-interest rates.
Performance Overview
Rui Fung Bank's 24Q1 revenue increased 15.3% year over year, and the growth rate rebounded 7.4 pc from month on month; net profit to mother increased 14.7% year over year, and the growth rate rebounded 1.7 pc from month to month from 23A. The 24Q1 defect rate remained flat at the end of 23Q4; provision coverage at the end of 24Q1 increased 1pc to 305% month-on-month compared to the end of 23Q4.
The growth rate of performance is picking up
Ruifeng Bank's 24Q1 revenue was +15.3% year-on-year, and the growth rate rebounded 7.4 pc from month to month. The revenue growth rate was the highest among the 8 agricultural commercial banks that have disclosed quarterly reports. 24Q1 profit was +14.7% YoY, and the growth rate rebounded 1.7pc from month to month. Revenue and profit growth both rebounded, thanks to: ① High growth in non-interest income. Non-interest income increased 51% year over year in 24Q1, due to the bullish bond market, and other non-interest income increased 47% year over year. ② The reduction in interest spreads has narrowed. The 24Q1 interest spread (the caliber at the beginning and end of the period is different from the actual value) decreased by 1 bps to 1.56% month-on-month, and the month-on-month decline in single-quarter interest spreads was 5 bps narrower than 23Q4.
Looking ahead to the full year, revenue and profit growth may decline. The main consideration is the gradual weakening of other non-interest contributions to revenue.
The decline in interest spreads has narrowed
It is estimated that the 24Q1 single-quarter interest spread fell 1 bps to 1.56% month-on-month compared to 23Q4, and the month-on-month decline in 24Q1 interest spreads was 5 bps narrower than 23Q4. Interest spreads narrowed month-on-month. Thanks to the narrowing in return on assets, debt cost ratios continued to improve. More specifically:
(1) The return on assets fell 4 bps to 3.67% month-on-month in 24Q1, and the decline was 7 bps narrower than 23Q4. The rapid decline in return on assets in the early period was mainly due to intense market competition, and interest rates on retail small and micro loans declined markedly.
(2) The 24Q1 debt cost ratio fell 4 bps to 2.27% month-on-month, continuing the improvement trend since 23Q4. It is mainly due to the continued release of benefits from lower interest rates on deposits.
Looking ahead to the whole year, interest spreads are expected to remain stable in the future. Main considerations: The favorable release of lower deposit interest rates will drive down debt costs, and lower debt costs are expected to hedge against the downward impact on return on assets.
Bad Overall stable
Ruifeng Bank's bad performance rate and attention rate at the end of 24Q1 were the same as at the end of 23Q4, and increased by 7 bps to 0.97% and 1.37%, respectively. The defect rate remained stable, but the interest rate increased month-on-month, mainly due to an increase in the small and micro risk industry.
Provisioning coverage increased by 1pc to 305% month-on-month at the end of 24Q1. Since its launch in 2021, provision coverage has increased sequentially for 11 consecutive quarters, and risk offsetting capabilities have been continuously strengthened.
Profit forecasting and valuation
The net profit of Rui Fung Bank is expected to increase by 11.09%/10.17%/10.75% year-on-year in 2024-2026, corresponding to BPS 9.33/10.21/11.18 yuan. The target price is 6.25 yuan/share, corresponding to the 2024 PB of 0.67 times. As of the close of April 26, 2024, the current price was 5.04 yuan/share, corresponding to the 2024-2026 PB valuation of 0.54/0.49/0.45 times. The current price space is 24%, maintaining a “buy” rating.
Risk warning: The macroeconomic economy has stalled, and the bad situation has been greatly exposed.