Matters:
On the evening of April 26, the Bank of Suzhou disclosed its 2023 annual report and 2024 quarterly report. In 2023/1Q24, it achieved operating income of 11.866 billion yuan/32.25 billion yuan, an increase of 0.88%/2.11% year-on-year; realized net profit of 4.601 billion yuan/1,455 billion yuan, an increase of 17.41%/12.29% year-on-year. The non-performing loan ratio remained flat at 0.84% month-on-month in 2023/1Q24, and the provision coverage rate stabilized at a relatively high level of 491.7% in 1Q24.
Commentary:
Net interest income dragged down a marginal slowdown in revenue growth, and the performance of other non-interest income was weak, which provided some support for revenue. Under the quality of high-quality assets, provisions continued to feed back profits, and net profit maintained a high double-digit increase. 1) Net interest income: 2023/1Q24 The Bank of Suzhou's net interest income increased 1.70%/-0.84% year on year, respectively. The cumulative year-on-year growth rate continued to slow from 3Q23, mainly due to narrowing interest spreads. Among them, net interest income for the 4Q23 quarter was -4.74% year-on-year, which is expected to be mainly affected by stock mortgage interest rate adjustments. Our estimated quarterly annualized interest spreads for 4Q23/1Q24 were 1.65%/1.58%, respectively. They continued to be -8 bp/-7 bps month-on-month on the 3Q23 basis. Mainly, asset-side returns are under some pressure. At the same time, it is expected that the trend of regularization of debt-side deposits will continue to rise. 2) Non-interest income: 2023/1Q24 net handling fee revenue was -6%/-29.7%, respectively. It is expected that there will be a certain reduction in agency insurance premiums mainly under the integrated reporting and banking policy. Against the backdrop of a stronger bond market, net other non-interest income grew well. It increased 2.6%/54% year on year in 2023/1Q24, respectively, supporting revenue growth to 2.11% year on year in 1Q24. 3) Net profit growth rate: Under the company's excellent asset quality, provisions continued to feed back profits, and the growth rate of net profit to mother increased 17.4%/12.3% year-on-year, respectively.
The growth of deposits and loans has not been weak, the asset side is still supporting the public, and savings deposits are growing beautifully. 2023/1Q24 Bank of Suzhou continued to maintain a high double-digit increase of 17.1%/19.8%, respectively. Among them, Q1 added 28.48 billion yuan in credit in a single quarter, up 9.7% from the previous month. It is still public support, adding 273.3/1.15 billion yuan to public and retail. Retail credit continued to grow well on a relatively high base last year, with a 4.0% year-on-year increase. Debt-side deposits grew significantly. Q1 deposits increased by 47.26 billion yuan, an increase of 13% over the previous month, and the increase is close to the increase in deposits for the full year of 2023. Of this, public deposits/savings deposits increased by RMB 209.9/26.27 billion, respectively.
The quality of assets is stable and excellent, and the provision is sufficient for safety. Bank of Suzhou's non-performing loan ratio remained flat at 0.84% month-on-month in 2023/1Q24. The net annualized non-performing loans in a single quarter of 23Q4 and 24Q1 increased slightly compared to Q3, at 0.53% and 0.48% respectively, and remained high overall. Looking at risk forecasting indicators, the share of concerned loans continued to decline in Q3, reaching 0.81% and 0.77% month-on-month, respectively, at low levels since 2021. Risk offsetting capacity remained high. At the end of the first quarter, the provision coverage rate declined 31 pcts to 491.7% month-on-month, and the loan ratio was 4.13%, which remained high overall.
Investment advice: As a local commercial bank deeply involved in Suzhou, the company has a high degree of marketization and young and energetic employees.
At present, the Bank of Suzhou's asset quality stock burden has been lifted, there is little additional negative pressure, and asset quality provides a thick safety cushion. According to the company's latest financial situation, considering the stock mortgage interest rate adjustment and the subsequent LPR reduction in February, bank interest spreads are still under pressure. Combined with the current macroeconomic situation, we expect the company's 2024E/2025E/2026E revenue growth rate to be 1.4%/7.7%/8.8% (2024E/2025E previous value 9.9%/10.8%), net profit growth rate is 11.8%/13.2%/12.8% (2024E/2025E) (Previous value 20.6%/19.7%), the 2024E PB corresponding to the current stock price is 0.61X, and the margin of safety corresponding to the valuation is high. Considering that the asset quality is excellent, the provision is sufficient, and the performance is highly sustainable, the company was given a 2024E target PB of 0.75X, corresponding to the target price of 8.72 yuan, and maintained a “recommended” rating.
Risk warning: Bank interest spreads are under further pressure due to insufficient economic growth momentum. Bank credit investment fell short of expectations.