Incidents:
On April 29, China Construction Bank released its 2024 quarterly report. The company achieved revenue of 2009 billion yuan in 1Q24, a year-on-year growth rate of -3%, and net profit to mother of 86.8 billion yuan, a year-on-year growth rate of -2.2%. The annualized weighted average return on net assets (ROAE) was 11.59%, a year-on-year decrease of 1.3 pct.
Comment:
Revenue and profit increased slightly, and net interest income improved month-on-month. The year-on-year growth rates of CCB's 1Q24 revenue, profit before provision, and net profit to mother were -3%, -3.7%, and -2.2%, respectively, down 1.2, 1.5, and 4.6 pcts from 2023, respectively. The growth rates of net interest income and non-interest income during the quarter were -2.2% and -5.2% respectively, with changes of 1.9 and -14 pcts respectively from 2023. Split profit growth structure: scale and provision are the main contributors, driving performance growth rates of 15.2 and 3.8 pct respectively; judging from marginal changes, the main boosting factors are narrowing interest spreads to reduce the degree of drag on performance. The main drag factors include: the positive contribution of non-interest income turned negative, and scale expansion led to a slowdown in performance.
The credit growth rate has returned to normal, and the “Five Big Articles” related fields are growing rapidly. At the end of 1Q24, the year-on-year growth rates of CCB's interest-bearing assets and loans were 7.8% and 11.1%, respectively. The growth rates decreased by 3.1 and 1.5 pct, respectively, from the end of the previous year. In terms of loans, 1Q added 1.17 trillion dollars in a single quarter, a year-on-year decrease of 160 billion dollars, accounting for 64% of interest-bearing assets, an increase of 0.8 pct over the end of the previous year. At the structural level, 1.37 trillion, 124.2 billion, and -352.4 billion dollars were added to public, retail, and notes respectively during the quarter, with increases of 10.4%, 1.4%, and -31.9%, respectively, from the beginning of the year, showing a pattern of “strong against the public, weak retail, and negative bills”. At the investment level, it focuses on key areas such as the “Five Big Articles”. Among them, green, inclusive finance, and corporate housing rental loans increased by 14.6%, 7.9%, and 7.1% respectively compared to the beginning of the year, all higher than the 4.9% increase in various loans. In terms of non-credit assets, financial investment and interbank assets increased by 257.8 billion yuan and decreased by 80.9 billion yuan respectively during the 1Q quarter, representing a year-on-year decrease of 67.6 billion and 643.9 billion dollars, accounting for a total share of 36% of interest-bearing assets, a slight decrease of 0.8 pct from the beginning of the year. The company reduced some low-interest financial investments and interbank assets during the quarter, and adjusted and optimized the asset-side structure.
Deposit growth has slowed, and the trend of regularization continues. The year-on-year growth rates of CCB's interest-paying liabilities and deposits at the end of 1Q24 were 7.6% and 6.9%, respectively, down 3.8 and 3.7 pct from the end of the previous year, respectively. The 1Q quarter added 1.73 trillion dollars in deposits, a year-on-year decrease of 763.3 billion yuan. The share of interest-paying debt increased by 1.7 pct to 83% compared to the end of the previous year. Looking at the term split structure, fixed-term and current deposits increased by 1.14 trillion yuan and 565.5 billion yuan respectively during the quarter. Term deposits at the end of the quarter accounted for 53.9%, a slight increase of 0.7 pct from the end of the previous year. By customer type, 1Q personal and corporate deposits increased by 1.06 trillion yuan and 646.4 billion yuan respectively. Individual deposits at the end of the quarter accounted for 54.2%, an increase of 0.4 pct over the end of the previous year. In terms of market-based liabilities, payable bonds and interfinancial debt decreased by 3141 billion and 14.9 billion yuan respectively during the quarter, a year-on-year decrease of 353.1 billion dollars and a decrease of 107.3 billion yuan. In total, they accounted for 20% of interest-paying debt, down 1.2 pct from the beginning of the year.
The decline in NIM narrowed year over year. 1Q24's NIM was 1.57%, down 13 bps from 2023, and 5 bps narrower than the 1Q23 period. The calculation results showed that on the asset side, the return on 1Q interest-bearing assets was 3.28%, down 14 bps from 2023, and the decline was 8 bps narrower than 1Q23. Loan pricing is still in a downward channel due to factors such as lower interest rates on stock mortgages, rolling repricing of stock loans, and insufficient effective demand. On the debt side, the 1Q interest-paying debt cost ratio was 1.92%, down 1 bps from 2023, while the 1Q23 interest-paying debt cost ratio rose marginally by 5 bps during the same period. Since April 2022, the China Stock Bank has lowered deposit listing interest rates four times. Along with the repricing of stock products progressing one after another and the suspension of “manual interest compensation” on deposits, subsequent cost improvement dividends will gradually be released, driving the cost of comprehensive debt further down and easing the pressure on interest spreads to narrow.
The growth rate of non-interest income turned negative, mainly hampered by the increase in processing fees. CCB's 1Q non-interest revenue of $51.2 billion (YoY -5%) increased its share of revenue by 5.7pct to 26% compared to 2023. Among them, (1) net revenue from processing fees and commissions was 39.3 billion (YoY -9%), accounting for an increase of 0.8 pct to 77% of non-interest income compared to 2023. In addition to the impact of high base factors, the increase in handling fees was mainly affected by falling rates in insurance, fund and other industries, and the negative year-on-year increase in agency business revenue. (2) Net other non-interest income of $11.9 billion (YoY +8.6%), including investment income of $1.74 billion (YoY -29%), fair value change income of $3.7 billion (YoY +59%), and net exchange earnings of $1.4 billion (YoY +15%), mainly affected by factors such as declining interest rates and exchange rate fluctuations in the bond market during the quarter.
Defect rates are kept low, and provisions are maintained at a high level. At the end of 1Q24, CCB's non-performing loan ratio was 1.36%, down 1 bps from the end of the previous year, reaching a record low. The balance of non-performing loans at the end of the quarter was $339.3 billion, an increase of $141 billion during the quarter, a year-on-year decrease of 2.7 billion dollars. 1Q credit impairment losses were 48.2 billion yuan, down 3.4 billion from year on year. Credit impairment loss/revenue was 24%, a slight decrease of 0.9 pct year over year. The overall quality of assets is stable, and there has been a slight decline in reserve planning efforts, reducing the drag on performance. The quarter-end loan ratio was 3.24%, down 4 bps from the end of the previous year; the provision coverage rate was 238.2%, a slight decrease of 1.7 pct from the end of the previous year, maintaining strong risk offsetting capacity.
The capital adequacy ratio has a strong margin of safety, and there are plenty of capital replenishment tools. At the end of 1Q24, CCB's core level/tier 1/ capital adequacy ratios were 14.1%, 15%, and 19.3%, respectively, up 0.96, 1, and 1.39 pct from the end of the previous year. On the one hand, the pace of corporate credit investment and expansion has slowed down, and the asset-side structure has been adjusted and optimized to form a certain capital saving effect; on the other hand, the implementation of the “new capital regulations” has been beneficial to the measurement of the company's capital adequacy ratio at all levels. The RWA growth rate has declined, and the capital adequacy ratio at all levels has increased to a certain extent. At the same time, during the 1Q quarter, the company issued 50 billion second-tier capital bonds to effectively supplement second-tier capital and raise the level of capital adequacy. The company recently announced the formulation of an interim profit distribution arrangement for 2024, which will implement mid-year dividends for 2024 based on current performance. The mid-year dividend ratio is not higher than 30%. As of the close of trading on April 30, the company's A share dividend ratio was 5.62%, which is among the top listed banks.
Profit forecasting, valuation and ratings. CCB is steadily advancing the three major strategies of “housing leasing,” “inclusive finance,” and “fintech.” Technology is empowering the three dimensions of B+C+G business transformation and restructuring, creating a “second growth curve”, and achieving integration and progress along the “one and two curves”. The company's revenue and profit are growing steadily, credit investment is booming, and characteristic businesses such as housing leasing, green finance, and agricultural inclusion are developing well. As macroeconomic sentiment gradually picks up, demand for effective credit is repaired, and the superimposed balance and liability structure continues to be adjusted, it is expected that company volume, price, and insurance will be rebalanced. We maintain the company's 2024-26 EPS at 1.34, 1.36, and 1.4 yuan. The current stock price corresponds to PB valuations of 0.56, 0.52, and 0.48 times, respectively, and the corresponding PE valuations are 5.32, 5.22, and 5.08 times, respectively, maintaining a “buy” rating.
Risk warning: Economic recovery fell short of expectations, downward pressure on loan interest rates increased, and repricing of stock mortgages and CITIC chemical bonds had a significant impact on NIM.