Incident: The Bank of Suzhou released financial reports for fiscal year 23 and 24Q1, achieving operating income/net profit of RMB 118.66 to 4.601 billion yuan, +0.88%/+17.41% year over year; operating income/net profit to mother of RMB 32.25/1,455 billion yuan in 24Q1, +2.11%/+12.29% year over year. The 23/24Q1 weighted ROE was 12.00%/3.32%, +0.48pct/+0.13pct year over year. By the end of 24Q1, the company's defect rate was 0.84%, the same as at the end of 23; the provision coverage rate was 491.66%, compared to 31.11 pct at the end of 23.
Revenue growth increased marginally, and revenue was under pressure. Revenue in '23 and 24Q1 was +0.88% and +2.11%, respectively, with a marginal increase in revenue growth; net profit to mother was +17.41% and +12.29% year-on-year respectively. The profit growth rate declined somewhat, but it is still in the middle and upper ranks among commercial banks in listed cities. Non-interest income in '23 and 24Q1 was $33.83 billion, 1.116 billion yuan, and +8.26%; the increase in growth was mainly supported by other non-interest income. Other non-interest income in '23 and 24Q1 was 21.45 billion yuan and 700 million yuan, respectively, +1.88% and +57.07% YoY. Revenue growth was under pressure. Net revenue from handling fees and commissions in '23 and 24Q1 was $124.41 million, or -5.95% and -29.55% year-on-year.
Offsite expansion continues to advance, supporting large-scale growth. As of the end of '23, the company's total assets, total loan amount, and total deposit amount were +14.74%, +17.06%, and +15.01% year-on-year respectively; as of 24Q1, the company's total assets, total loan amount, and total deposit amount were +16.82%, respectively.
The company's accelerated offsite expansion was the main reason for the high increase in support scale. At the end of '23, loans in Suzhou and other regions of Jiangsu Province were +16.25% and +18.41%, respectively. On the loan side, as of 24Q1, the company's loan ratio was +19.82%, compared to the end of '23; on the deposit side, as of 24Q1, the company's deposit ratio was +16.42%, compared to +12.99% at the end of '23, showing a strong ability to collect savings.
Interest spreads continue to be under pressure. The company's net interest spread in Q1 '24 was 1.52%, compared to 23-16BP, and -27BP compared to the same period last year. We believe that interest spreads are under pressure for two reasons: first, the company's loan structure is biased towards the manufacturing industry, and quarterly repricing puts pressure on interest spreads; second, competition among banks in the Suzhou region has reduced the premium space for loan pricing, and the inflection point in the deposit regularization trend has not yet appeared.
The non-performing rate remains stable, and the overall asset quality is excellent. As of 24Q1, the company's non-performing rate was 0.84%, the same as at the end of 23; the provision coverage rate was 491.66%, compared to 31.11pct at the end of 23. Although it has decreased, it is still high. Risk compensation capacity is strong, and profit growth space has been appropriately freed up. The attention rate was 0.77%, showing that overall asset quality is stable and improving compared to 23-4BP. The quality of personal loan assets is under marginal pressure. The non-performing rate of personal loans was +34BP to 1.02% year on year in '23, of which the non-performing ratio of personal business loans was +56BP year over year.
Investment advice: The company has significant location advantages, accelerated offsite expansion supports scale growth, and is expected to continue to achieve high-quality development; the company's business has great market potential, and the acquisition of public funds, custodian licenses, and financial sub-licenses is expected to drive mid-income growth. The arrival of the convertible debt-for-equity swaps period is beneficial to capital replenishment, and performance growth is strong. In 2024-2026, the company's revenue is expected to be 123.84, 134.38, and 14.69 billion yuan, net profit due to mother is 52.21, 59.29, 6.731 billion yuan, and BVPS is 13.70, 15.53, and 17.66 yuan/share. The PB valuation corresponding to the closing price on May 9 is 0.54x, 0.48x, and 0.42x. The first coverage gives an “gain” rating.
Risk warning: Economic recovery falls short of expectations, industry net interest spreads continue to decline, asset quality deteriorates sharply