There is room for majority shareholders to increase their holdings, and new management injects development vitality. Since 2022, France and Pakistan, the Municipal State-owned Assets Administration Commission, and Jiangsu Traffic Control have increased their holdings many times, and the company is highly recognized. After the foreign share ratio restrictions of banks and insurance institutions were lifted, there was further room for France and Pakistan to increase their holdings. The new chairman took office at the beginning of the year. He is young and promising. He has many years of experience in the regulatory system, and is expected to take the company's strategic planning and management capabilities to the next level.
Business characteristics continue to settle down, and new outlets have entered a period of releasing production capacity. On the public side, government finance has a stable advantage, and efforts to serve the real economy have broad prospects for science, innovation, small and micro development; on the retail side, consumer loans are an important gripper for retail transformation, and the implementation of consumer finance licenses has added further momentum for growth. By the end of 2023, the plan to add 100 new outlets has basically been completed. As the new outlets enter the production capacity release stage one after another, there is a high degree of certainty about subsequent asset expansion.
The large amount of risk in stock has been cleared, and the inflection point of risk has already appeared. The large amount of bad stock has been fully calculated for impairment, and the drag on performance has been cleared up. In recent years, the company has continued to optimize loan investment and reduce loan concentration. As of 2024Q1, the non-performing rate decreased by 7 bps to 0.83% compared to the end of 2023, and an inflection point in asset quality has arrived. Although pressure in the retail sector is currently rising marginally, the defect rate is definitely low and the write-off cycle is short. Asset quality is expected to remain stable, moderate and positive.
The downward pressure on interest spreads is manageable, and there is plenty of room for debt cost pressure to drop. The cost of debt is higher than that of peers, and is mainly hampered by the regularization of deposits. As long-term deposits absorbed by high interest rates in the early period expire one after another, efforts are made to control high-interest debt amounts, and intermediary business drives demand deposits to settle, there is plenty of room for improvement in debt costs, which is expected to slow down the decline in interest spreads.
Performance growth has upward momentum, and ROE is expected to remain industry-leading. 2024Q1 revenue and profit growth rates have both rebounded, and the will to swap convertible bonds to equity is expected to further drive the release of performance; annualized ROE increased 1.85pct to 13.21% from the end of 2023, and is expected to continue to recover in the future: 1) The release of production capacity from new outlets helped expand the table. 2) There is plenty of room for improvement in debt costs. 3) Non-interest income is expected to maintain a high level of contribution. 4) After the stock risk is cleared, the credit cost pressure is manageable. In its current position, the company's valuation and dividends have a comparative advantage among commercial banks in core cities.
The year-on-year growth rate of the company's net profit for 2024/25/26 is 10.4%/11.9%/14.6%, respectively, and the BVPS is 14.76/16.35/18.18 yuan respectively (the previous forecast value was 14.70/16.26/18.11 yuan). The current A share price corresponding to 2024/25/26 PB is 0.70/0.64/0.57 times, respectively. Using the historical valuation method, 0.82 times PB for 24 years was given based on the average value of the past three years, corresponding to the target price of 12.04 yuan/share, maintaining the “buy” rating.
Risk warning
Economic recovery fell short of expectations; monetary policy exceeded expectations and tightened; capital market fluctuations exceeded expectations; risks spread in key areas; and changes in assumptions affected the calculation results.