The Bank of Communications's net profit and operating income for the third quarter was -0.69% and -1.39%, respectively. Compared with 24H1, the growth rate was +0.94 pct and +2.12 pct compared to 24H1. The company's profit for the third quarter was basically in line with our previous expectations. Revenue was slightly higher than expected (24Q1-3E net profit/revenue was -1% ~ 0%/-4% ~ -3%, respectively). Highlights of the performance were accelerated asset expansion, strong resilience in interest spreads, recovery in non-interest income, and stable asset quality. The company's revenue is diversified, the operation is steady, and the A/H share increase/purchase rating is maintained.

Asset expansion is speeding up, and interest spreads are more resilient

The growth rates of total assets, loans, and deposits at the end of September were +5.5%, +6.8%, and +1.0%, respectively. Compared with +2.9pct, +0.7pct, and +0.2pct at the end of June, the loan growth rate was repaired. Manufacturing, inclusion, and agriculture were the main investments. 24Q3 added 174.4 billion yuan in loans, contributing 47%/42%/11% to public/retail/notes respectively.

The 24Q1-3 net interest spread was 1.28%, down 1 bps from 24H1, and was flat from the beginning of the year. Interest spreads were strong at a low base. Net income from 24Q1-3 interest was +2.2% year-on-year, which was basically the same as the interim report.

Non-interest income is picking up, and the base effect is being digested

Non-interest revenue in January-September was -7.3% year-on-year, with a growth rate of 24h1-4.9pct. Non-interest revenue growth picked up. Intermediate business revenue was -14.0% year-on-year in the first three quarters, and the growth rate compared to 24H1+0.6pct. Negative effects such as integrated insurance agent reporting and lower fund rates are expected to narrow in the future. Other non-interest income in January-September was -1.7% year-on-year, up 8.5 pcts from H1. The high base effect of the same period last year was gradually digested. 24Q1-3 cost revenue ratio was 30.4%, +0.2pct year over year.

Asset quality is stable, and capital needs to be consolidated

At the end of September, the non-performing loan ratio and provision coverage rate were 1.32% and 204%, respectively, unchanged from month to month, at -1 pct.

The attention rate decreased by 8 bps to 1.58% from the end of June, and asset quality remained stable in an environment of weak recovery.

We estimated an annualized defect generation rate of 0.50% in Q3, which is basically the same as in Q2. We will follow up on risk changes in real estate, retail and other fields. The capital adequacy ratio and core Tier 1 capital adequacy ratio at the end of September were 16.22% and 10.29%, respectively, -0.12 pct and -0.01pct month-on-month. Recently, the Ministry of Finance announced that it plans to raise capital through channels such as issuing special treasury bonds and supplement the core Tier 1 capital of the six major banks. If the capital injection is implemented, it is expected to leave capital space for major banks to strengthen their services to the real economy.

Give A/H shares a 25-year target of 0.65/0.53 times

We predict that the company's net profit for 24-26 will be 93.9/95.3/98.7 billion yuan (previous value of 91.6/93.9/96.6 billion yuan), with a year-on-year growth rate of 1.3%/1.5%/3.5%, and a 25-year BVPS of 14.09 yuan. A/H shares correspond to PB0.51/0.40 times that of the company's 25-year Wind. The company's comprehensive operation is effective and should enjoy a certain valuation premium. We will give The 25-year target for A/H shares is 0.65/0.53 times, and the target price for A/H shares is 9.16 yuan/8.12 HKD.

Risk warning: Policy progress falls short of expectations; economic recovery falls short of expectations.