Incident: China Merchants Bank released its 2024 three-quarter report. In the first three quarters of 2024, China Merchants Bank achieved operating income of 252.709 billion yuan, a year-on-year decrease of 2.91%; net profit attributable to shareholders was 113.184 billion yuan, a year-on-year decrease of 0.62%.

Comment:

The growth rate of 2024Q3 net profit to mother changed from negative to positive. In the first three quarters of 2024, China Merchants Bank achieved operating income of 252.709 billion yuan, a year-on-year decrease of 2.91%; net profit attributable to shareholders was 113.184 billion yuan, a year-on-year decrease of 0.62%. As far as the third quarter was concerned, the decline in revenue increased by 1.03 percentage points, and the growth rate of net profit to mother changed from negative to positive, and the growth rate increased 1.46 percentage points from month to month. The average return on total assets (ROAA) attributable to shareholders after annualization and the average return on net assets (ROAE) attributable to common shareholders after annualization were 1.33% and 15.38%, respectively, down 0.13 and 2.00 percentage points from the previous year.

Consignment wealth management revenue grew at a high year-on-year rate. After splitting the revenue structure, China Merchants Bank achieved net interest income of 157.298 billion yuan in the first three quarters, a year-on-year decrease of 3.07%. Net non-interest income of 95.411 billion yuan was achieved, down 2.63% year on year. When split, net handling fee and commission revenue was 55.702 billion yuan, down 16.90% year on year. Driven by the two factors of increase in consignment scale and product structure optimization, consignment wealth management revenue increased 47.36% year on year; and due to the continued impact of insurance fee reduction effects, agency insurance income decreased by 54.56% year on year. Other net income was 39.709 billion yuan, up 28.23% year over year, mainly due to increased income from bond and fund investments.

Deposit costs continue to be optimized. In the first three quarters of 2024, China Merchants Bank's net interest spread was 1.99%, down 20 basis points year on year and 2 basis points month on month. Affected by the reduction in the quoted interest rate (LPR) in the loan market and the reduction in interest rates on existing mortgages, combined with insufficient demand for effective credit, the yield on emerging credit operations declined year-on-year, leading to a decline in yield on interest-bearing assets, which is a major factor in lowering the return on net interest. At the same time, benefiting from lower deposit interest rates and strict restrictions by regulatory authorities on high-demand savings practices such as manual interest payments, and the company continued to drive the growth of low-cost core deposits, deposit costs continued to drop 4 basis points to 1.54% month-on-month in the third quarter, which had a positive effect on net interest yields.

The bad generation rate continues to improve. At the end of September, China Merchants Bank's non-performing loan ratio was 0.94%, down 0.01 percentage points from the end of the previous year, which was the same; the non-performing loan generation rate was 1.02%, down 0.01 percentage points from the previous year; it focused on the loan ratio of 1.30%, up 0.20 percentage points from the end of the previous year, and an increase of 0.06 percentage points over the previous year. Concern loans were mainly disrupted by the retail side. Among them, interest loan ratios for personal housing loans and credit card loans increased 0.32 and 0.56 percentage points to 1.27% and 3.91%, respectively, from the end of the previous year. The provision coverage rate was 432.15%, down 5.55 percentage points from the end of the previous year, down 2.27 percentage points from the previous year, and risk offsetting capacity is still at a high level.

Investment advice: Maintain a “buy” rating. China Merchants Bank's net assets are estimated to be 40.91 yuan per share in 2024, and the corresponding PB is 0.94 times the current stock price.

Risk warning: Risk that consumer consumption and corporate investment will fall short of expectations due to economic fluctuations; risk of weakening credit demand and pressure on bank asset quality due to falling short of expectations in real estate; risk that falling market interest rates will cause bank asset-side returns to decline, and net interest spreads will continue to be pressured.