ICBC released its 2024 quarterly report. The 24Q1 company's revenue, PPOP, and net profit to mother increased by -3.4%, -5.3%, and -2.8%, respectively. The growth rates changed by +0.3 pct, +0.4 pct, and -3.6 pct respectively from the full-year growth rate in '23. Judging from the performance driver, scale growth was the main positive contribution, and the year-on-year narrowing of net interest spreads was the biggest drag.
Highlights: (1) Interest spreads in a single quarter stabilized month-on-month. We estimate that the 24Q1 net interest spread was 1.44%, up from the 23Q4 single quarter's net interest spread month-on-month. It is expected to mainly benefit from improvements in the asset structure (month-on-month increase in the share of loans, and an expected decrease in the share of notes in loans) and the reduction in deposit interest rates.
(2) Earnings performance was better than expected. The company's net processing fee fell 2.8% in 24Q1. Although the downward trend continued, the decline was significantly narrower than in the full year of '23. Considering the high and low processing fee growth rate in 23, the 23Q1 base was relatively high, and the 24Q1 net processing growth rate performed better than expected. (3) Asset quality indicators are stable. The company's defect rate at the end of 24Q1 was 1.36%, the same as at the end of 23.
At the end of 24Q1, the company's provision coverage rate was 216.31%, up 2.34pct from month to month. Asset quality indicators have remained stable.
Concern: (1) Negative profit growth rate. The company's Q1 revenue, PPOP, and profit all grew negatively, and the market may be concerned about whether the annual profit growth rate and dividend amount can achieve positive growth. However, we believe that the gradual transformation of bank concession entities from the revenue side to the profit side may help reduce the pressure to continue making concessions in the future, and profit growth may gradually pick up as the base declines in the last three quarters of last year. (2) The increase in core Tier 1 capital adequacy ratio is not significant. In the first quarter of implementation of the new capital regulations, the core Tier 1 capital adequacy ratio of some major banks increased markedly. At the end of the first quarter of '24, ICBC's core Tier 1 capital adequacy ratio was 13.78%, up 0.06pct from the end of '23. Although there was also an increase, the magnitude was not significant.
Profit forecast and investment advice: Although the company's Q1 revenue was under pressure and profits declined, the company's asset quality was steady, interest spreads showed signs of stabilizing, and revenue performance was better than expected. Considering the high and low revenue base last year, it is expected that the downward pressure on the company's revenue will decrease quarterly, and the annual results are expected to achieve positive growth. Net profit growth in 24/25 is expected to be 0.98%/1.34%, EPS is 0.99/1.00 yuan/share, BVPS is 10.26/10.99 yuan/share, the latest closing price of A-shares is 0.52X/0.49X for 24/25, and 5.44X/5.36X for 24/25 PE. Maintaining the reasonable value of the company's A shares of 6.67 yuan/share, corresponding to the 24-year PB reasonable valuation of 0.65X. According to the current AH premium ratio, the reasonable value of H shares is HK$5.21 per share, all of which are given a “buy” rating.
Risk warning: (1) The macroeconomy declined beyond expectations, and asset quality deteriorated sharply. (2) Deposit cost control falls short of expectations. (3) Policy implementation fell short of expectations, and financial risks exceeded expectations.