Core views:
Huaxia Bank released its annual report for the year 23 and the quarterly report for 2014. The 23A and 24Q1 revenue growth rates were -0.6% and -4.3% respectively, and the PPOP growth rates were -5.6% and -8.6%, respectively. The company's historical burden was gradually cleared. The company's historical burden was gradually cleared. Against the backdrop of negative 24Q1 revenue and PPOP growth, performance maintained positive growth, in line with investors' expectations.
Highlights: (1) Net interest income declined significantly in Q1, but provision for backfeed and other non-interest growth contributions maintained positive growth in performance. Looking at single-quarter drivers, 24Q1 performance growth pressure was significantly greater than 23Q4. Net interest income decreased by 9.3% year on year (VS.23q4: +7.3%), other non-interest income increased by 33.5% (VS.23q4: +73.2%), and impairment losses decreased 18% year on year, contributing significantly.
(2) Asset quality continues to improve. The non-performing loan ratio at the end of March was 1.66%, down 1BP from the end of December; the provision coverage rate at the end of March was 161%, up 0.5 PCT from the end of December; it is concerned that the loan ratio remained flat month-on-month, at 2.74%; the estimated bad generation rate was 0.98%, down 21BP from 23Q1 and 31BP from 23A. Looking at changes in non-performing loans in 23H2, the balance of non-performing loans fell by 1.8 billion yuan, personal non-performing loans fell by 1 billion yuan, and corporate non-performing loans fell by 2.7 billion yuan, mainly by 1.3 billion yuan in manufacturing, and 800 million yuan in non-performing manufacturing; regionally, non-performing loans fell by 5.4 billion yuan, in the central and eastern regions by 3.8 billion yuan, in the Yangtze River Delta region by 1.8 billion yuan, and in the Northeast region by 1.3 billion yuan; in terms of guarantee methods, mainly non-performing loans decreased by 2.2 billion yuan. (3) Credit growth repair. 24Q1 credit increased by 999 billion yuan, an increase of 19.8 billion yuan over the previous year. The increase was higher than the full year of '23, with a 2.4% year-on-year increase (vs. 1.6% increase at the end of 23).
Attention: (1) 24Q1 net interest spread declined significantly from month to month. The company disclosed 23Q1, 23H1, 23Q1-3, 23A, and 24Q1. Net interest spreads were 1.95%, 1.87%, 1.87%, 1.82%, and 1.62%, respectively. Q1 net interest spreads decreased by 20BP month-on-month. According to our estimates, the 24Q1 yield on interest-bearing assets and the cost ratio of interest-bearing debt varied from 23Q4 to -47BP and -4BP, respectively. The narrowing of interest spreads in Q1 is mainly due to a sharp decline in asset-side returns. It is expected that mainly loans have a decline in the share of interest-bearing assets, and the return on investment assets has declined significantly. (2) The growth of Q1 deposits slowed, and interbank debt increased sharply. 24Q1 deposits increased by 63.1 billion yuan, a year-on-year decrease of 55.9 billion yuan, while interbank debt (including NCD) increased by 34.4 billion yuan, an increase of 72.5 billion yuan over the previous year.
Profit forecasting and investment advice: There is plenty of room for improvement in the balance sheet, and retail transformation and balance and liability restructuring are expected to systematically improve the company's profitability. Net profit growth in 24/25 is expected to be 1.3%/3.0%, EPS is 1.62/1.67 yuan/share, BVPS is 18.81/20.16 yuan/share, current stock price is 4.2X/4.0X, corresponding 23/24 PE is 4.2X/4.0X, and 23/24 PB is 0.4X/0.3X. The company was given 0.4 times PB for 24 years, corresponding to a reasonable value of 7.52 yuan/share, maintaining a “buy” rating.
Risk warning: (1) Macroeconomics declined more than expected, and asset quality deteriorated sharply. (2) Consumption recovery fell short of expectations, and deposit regularization was serious. (3) Market interest rates are rising, and transaction books are at a loss.