Incidents:

On April 29, China CITIC Bank released its 2024 quarterly report, achieving operating income of 53.77 billion yuan, up 4.7% year on year, and achieving net profit of 19.19 billion yuan, up 0.2% year on year; 24Q1 weighted average return on net assets was 12.57%, down 1.29 pct year on year.

Comment:

Under the influence of a low base, the revenue growth rate improved markedly, and increased impairment accrual strength dragged down profit growth. The year-on-year growth rates of the company's 24Q1 revenue, profit before provision, and net profit to mother were 4.7%, 5.6%, and 0.2%, respectively. The growth rates of revenue and profit before provision were 7.3 and 10.9 pcts higher than in 2023, respectively, and the growth rate of net profit to mother decreased by 7.7 pcts compared to 2023. Among them, net interest income and non-interest income grew at -4.5% and 27.6% year-on-year, up 0.2 and 25 pcts from 2023, respectively; the credit impairment loss/operating income and cost to revenue ratios were 31.3% and 27%, respectively, with changes of 3.7 and -0.6 pct, respectively, from the same period last year. The year-on-year profit growth structure was split, with non-interest and scale expansion as the main contributors, driving performance growth rates of 20.9 and 8.4 pct, respectively. Judging from marginal changes, 1) the recovery in performance growth mainly benefits from: ① the negative drag on net interest spreads has narrowed; ② the investment income contribution has increased dramatically; ③ the company has increased various cost controls, and the negative cost drag has narrowed slightly; 2) the main performance drag items include: ① the decline in scale expansion contributions; ② the shift in provision from positive contributions to negative contributions.

Loans in key areas continued to increase rapidly, and investment in mortgage loans picked up. In 24Q1, the company added 20.9 billion yuan in interest-bearing assets in a single quarter, a year-on-year decrease of 131.8 billion dollars, and the year-on-year balance growth rate decreased by 1.7 pct to 3.7% compared to the beginning of the year.

1) Looking at the investment structure of interest-bearing assets, 1Q added loans, financial investments (excluding transactional financial assets, same below), and interbank assets of 84 billion yuan, -16.6 billion yuan, respectively. Among them, loans and interbank assets decreased by 109.2 billion yuan and 75.5 billion yuan, respectively, while financial investment decreased by 52.9 billion yuan year-on-year; loan balances grew 4.4% year-on-year, down 2.3 pcts from the beginning of the year.

2) Judging from the credit investment structure, the decline in loans was mainly dragged down by notes. Corporate loan investment dominated, and mortgage loan investment continued to pick up. Specifically: ① Enterprise side: 1Q corporate loans increased by 207.8 billion yuan, a year-on-year decrease of 3.6 billion dollars. Among them, green loans and medium- and long-term loans to the manufacturing industry increased by 41.2 billion yuan and 19.9 billion yuan respectively, with year-on-year decreases of 3 billion and 1 billion dollars respectively; balance growth rates were 32.2% and 24.8%, respectively, far higher than the growth rate of general loans. Under the guidance of the “balanced investment” policy, the pace of corporate loan investment slowed down in the beginning of the year, and loans in key areas continued to increase; ② Retail: 1Q retail loans increased by 25.6 billion yuan, a year-on-year decrease of 10.5 billion; structurally, mortgage loans, operating loans, and credit cards increased by 6.3 billion yuan, 20.9 billion yuan, and -111 billion respectively, of which mortgage loans increased 15.6 billion yuan year-on-year. The expansion of retail credit still depends on operating loans, and mortgage loan investment has picked up; ③ Notes: 1Q decreased by 149.5 billion dollars, a year-on-year decrease of 95.1 billion dollars, which is the main drag on credit.

Deposit growth has been relatively weak, and net NCD financing has increased. The company added 30.3 billion new interest-paying liabilities, a year-on-year decrease of 265.9 billion yuan, and the year-on-year balance growth rate decreased by 3.5 pct to 2.3% from the beginning of the year; judging from the structure of new interest-paying liabilities, 1Q's new deposits, bonds payable, and interbank liabilities were 18.9 billion yuan, 223.4 billion yuan, and -275.6 billion yuan respectively, and payable bonds increased by 291.1 billion yuan; NCD financing increased by 291.1 billion yuan year-on-year; the year-on-year increase in deposit balance was -0.0.4% , down 6.3pct from the beginning of the year.

Further examining the deposit structure, company deposits and retail deposits increased by -9.5 billion and 28.4 billion yuan respectively, with year-on-year decreases of 267.6 billion yuan and 53 billion dollars respectively. Against the backdrop of wage and bonus payments at the beginning of the year and the company's pressure reduction on high costs on the enterprise side, the growth of corporate deposits was relatively weak.

The 24Q1 net interest spread fell 8 bps to 1.70% from 2023, mainly driven by the asset side, and debt costs improved. In 24Q1, the disclosed value of the company's net interest spread was 1.70%, 8 bps narrower than in 2023; when calculating the return on interest-bearing assets, the interest-paying debt cost ratios were 3.78% and 2.16%, respectively, down 15 bps and 4 bps from 2023, respectively. From the asset side, due to factors such as lower interest rates on stock mortgages and rolling repricing of stock loans, loan pricing is falling, and it is estimated that the reduction in stock mortgage interest rates will affect the yield on interest-bearing assets by about 5 bps; from the debt side, it may mainly benefit: first, the company continues to reduce pressure on high-cost liabilities, and second, the dividends from lower interest rates on early deposit listings were released centrally this year.

Investment income supported the strengthening of non-interest income, and the share of non-interest income increased by 6pct to 35% compared to the same period last year. The company's 24Q1 non-interest revenue increased 27.6% year-on-year to 18.8 billion, an increase of 25 pcts compared to 2023. Among them, net handling fees and commission revenue fell 2% year on year to 8.4 billion, up 10.7 pcts from 2023. Due to factors such as increased capital market volatility and “integration of reporting and banking” in banking insurance channels, handling fee revenue continued to grow negatively, but the decline narrowed markedly; net other non-interest income increased 68.5% year over year to 10.43 billion yuan, an increase of 41.8 pcts compared to 2023. Interest rates in the 24Q1 bond market declined markedly, leading to a relatively good increase in bond valuation income. 24Q1 investment income and fair value change profit and loss reached 8.15 billion yuan and 1.97 billion respectively. Among them, investment income increased by 4.96 billion dollars over the same period last year, constituting the main driving force behind the strengthening of net other non-interest rates.

The quality of assets is generally stable, and the ability to offset risks remains high. At the end of 24Q1, China CITIC Bank's non-performing loan balance was 65.64 billion, up 840 million from the beginning of the year, and the non-performing loan ratio was 1.18%, the same as at the beginning of the year; the balance of concerned loans was 89.49 billion, up 2.82 billion from the beginning of the year, and the attention rate was 1.6%, up 3 bps from the beginning of the year. In terms of provision, 1Q accrued credit impairment losses of 16.85 billion yuan, a year-on-year increase of 2.65 billion, and credit impairment loss/average total assets (annualized) was 0.74%, up 9 bps year over year; provision balance was 136.4 billion, up 1.87 billion from the beginning of the year; provision coverage rate was 207.8%, up 0.2 pct from the beginning of the year; the loan ratio was 2.44%, down 1 bps from the beginning of the year, and risk offsetting capacity remained high.

Affected by convertible debt-to-equity swaps and the slowdown in RWA growth, capital adequacy ratios at all levels have increased markedly. By the end of 24Q1, the company's core Tier 1, Tier 1, and capital adequacy ratios were 9.69%/11.44%/13.61%, respectively, up 69/69/68 bps from the beginning of the year. The company's capital adequacy ratio at all levels has increased, mainly due to: ① CITIC Financial Holdings, the majority shareholder of the company, converted its holdings of 264 billion CITIC bonds into the company's A-share common shares on March 29, driving the capital adequacy ratio at all levels to increase by about 39 bps; ② the RWA growth rate at the end of 1Q was 3.2%, down 3.3 pct from the beginning of the year, and capital consumption was reduced.

Profit forecasting, valuation and ratings. The company plans to pay a cash dividend of 3.56 yuan for every 10 shares in 2023, with a corresponding dividend ratio of 28%, the same as the previous year; the dividend rate corresponding to the current stock price is 5.2%. CITIC Financial Holdings's transfer of shares to help reduce the pressure on the company's capital. Currently, the CET1 safety margin is relatively abundant, reaching 1.7 pct. The compatibility between the company's ROE and RWA growth rate has improved markedly. It is not ruled out that the dividend ratio may rise to 30% in 2024, and there is room for further increase in the dividend ratio; on the other hand, CITIC Financial Holdings still has 13.4 billion shares to be converted, accounting for 34% of the total amount issued. The current share conversion price of CITIC Bonds is 6.1 yuan. The company's current stock price is still about 15% of the strong ransom price. It is expected that the company will still have strong performance release demands in the future, enhancing its ability to replenish endogenous capital while promoting convertible debt-for-equity swaps. Maintain the company's net profit forecast for 2024-2026 at 688/716/74.1 billion. The current stock price corresponds to the 2024-2026 PB valuation of 0.54/0.50/0.46 times, respectively, and maintains an “increase in holdings” rating.

Risk warning: If the macroeconomic economy declines more than expected, it may increase the potential risk of exposure to large amounts of risk.