The Agricultural Bank released its 2024 three-quarter report. The 24Q1-3 company's revenue, PPOP, and net profit to mother increased by 1.3%, 1.5%, and 3.4% year-on-year, respectively. The growth rates were +0.99pct, +1.42pct, and +1.39pct respectively compared to 24H1. Judging from the performance drivers, scale growth, other non-interest and effective tax rates were the main positive contributions, and factors such as narrowing net interest spreads and falling processing fees contributed to a certain extent.

Core views:

Highlights: (1) Leading the market in terms of performance growth. The revenue and profit growth rate increased further. The profit growth rate in Q3 exceeded 5% in a single quarter, and the performance growth rate maintained the leading position of the major banks.

(2) Stable asset quality. At the end of 24Q3, the defect rate was 1.32%, unchanged from month to month, and the provision coverage rate was 302.36%, maintaining a comparative advantage. The estimated rate of bad generation between 24Q1-3 was 0.51%, a year-on-year recovery of 6 bps.

(3) Interest spreads remain stable. The net interest spread from 24Q1-3 was 1.45%, the same as 24H1. The interest spread remained stable mainly due to continued improvement in the debt cost ratio.

(4) The growth rate of risk-weighted assets declined. Thanks to the new capital regulations, the company's weighted risk asset growth rate was -0.19% at the end of 24Q3, far lower than the endogenous capital growth rate (annualized ROE minus dividends), and the core tier 1 capital adequacy ratio increased sequentially.

Follow:

(1) The market is concerned that refinancing may have diluting effects. The Agricultural Bank's core tier 1 capital adequacy ratio is at the midstream level of major banks, and the performance growth rate and valuation are at the forefront of major banks. Recently, the Ministry of Finance stated that it will supplement capital for major state-owned banks and enhance physical service capabilities. The market is concerned about the agricultural bank's financing amount and pricing benchmark. The dividend dilution effects generated by fixed market price increases and 1PB fixed increases vary greatly, and the market may also give different feedback.

(2) Deposit growth is under pressure. The size of the company is growing rapidly, and there are also certain requirements on the debt side. Deposits at the end of 24Q3 (excluding accrued interest) increased 3.3% year over year, a further decline from the end of 24Q2, and much lower than the growth rate of loans. In response, the company increased the growth rate of active debt, the growth rate of interbank debt increased sharply, and the filing and usage rate of interbank deposits was approaching the upper limit.

Investment advice: The Agricultural Bank's asset quality is excellent. The strategy of speeding up scale expansion in the early stages of relatively high interest rates has reserved resources for current profit release to a certain extent, leading the market in performance growth. Thanks to the new capital regulations, the company has achieved phased endogenous capital sustainability. Combined with possible future capital supplements, the company's capital adequacy ratio will further increase, providing a guarantee for sustainable dividends. We maintain a “Highly Recommended” rating.

Risk warning: The economic downturn exceeded expectations; macroeconomic policies fell short of expectations; the rise in deposit costs exceeded expectations.