1Q24 revenue slightly exceeded our expectations, and profit met our expectations
Zheshang Bank announced 1Q24 results. The company's 1Q24 revenue was +16.6% year-on-year, and net profit to mother was +5.1% year-on-year. Revenue exceeding our expectations was mainly due to a high increase in other non-interest income in the context of strong debt.
Development trends
The asset structure has improved, and net interest spreads are resilient. The company's 1Q24 net interest business revenue was +0.6% year-on-year. The company's total assets in 1Q24 increased 0.6% month-on-month, with loans +3.1% month-on-month/+11.0% year-on-year, and loans as a share of total assets. Against the backdrop of increased deposit competition, the company's 1Q24 deposits were +1.3%/+10.7% month-on-year respectively. We estimate that the company's net interest spread at the beginning of the 1Q24 period was -4 bps to 1.68% month-on-month, and -29 bps year-on-year. The net interest spread for the first quarter was resilient. Among them, the yield on interest-bearing assets decreased by 9 bp to 4.10% month-on-month, and the interest-paying debt cost ratio benefited from the reduction in time deposit interest rates and a 2 bps to 2.35% month-on-month reduction.
The financial market business provides strong support for non-interest business revenue and total revenue. The company's 1Q24 net handling fee revenue decreased by 3.4% year-on-year, mainly due to the fact that the wealth capital market is still weak, and at the same time, the integration of reporting and bank reporting and lower fund rates still had an impact on wealth income. Benefiting from the good performance of the bond market and the company's ability to seize investment opportunities in the first quarter, the company's other non-interest income increased 104.7% year-on-year in 1Q24. The gold market business provided strong support for other non-interest income business revenue and total revenue.
Asset quality has remained steady, and capital adequacy ratios have increased. The company's 1Q24 non-performing loan ratio was 1.44%, the same as at the beginning of the year. We estimate the company's 1Q24 net non-performing loan formation rate of 0.95%, which is the same as the full year of 2023. In terms of credit costs, 1Q24 credit costs increased by 10 bps to 0.68% year over year, and decreased by 13 bps compared to 4Q23; the company's provision coverage rate decreased slightly by 5.1 pct to 177.5% compared to the beginning of the year. Benefiting from the implementation of the new “Commercial Bank Capital Management Measures”, the company's core Tier 1 capital adequacy ratio increased by 38 bps to 8.60% compared to the end of the previous year, providing some room for the company to invest in future loans.
Profit forecasting and valuation
We keep our profit forecast unchanged. The company's A shares are currently trading at 0.5x/0.4x 2024E/2025EP/B. We maintain the target price of 3.55 yuan for the company's A shares, corresponding to 0.5x/0.5x 2024E/2025EP/B and 20.7% upward space; H shares are currently trading at 0.3x/0.3x 2024E/2025E P/B, and we maintain the target price of HK$2.77 for the company's H shares, corresponding to 0.4x/0.4x 2024E/2025EP/B and 24.2% upward space. Maintain outperforming industry ratings.
risks
The macroeconomic and loan demand recovery fell short of expectations, and asset quality fell short of expectations.