Deposit growth is accelerating, and asset quality is stable
Net profit, revenue, and PPOP returned to the mother in '22 compared to -3.5%, -1.2%, and -3.8% compared to January-September -0.9 pct, -1.4pct, -1.0pct. ROE and ROA in '22 were -0.77 pct and -0.05 pct, respectively. The slowdown in performance growth was mainly due to narrowing interest spreads and an increase in the cost-to-revenue ratio. Given the acceleration of asset expansion, we forecast EPS of 1.78/1.84/1.88 yuan for 2023-25 and 21.40 yuan of BVPS for 23, corresponding to 0.35 times PBL. Comparable to the company's 23 Wind unanimously predicted an average PB value of 0.53 times. The company's digital transformation empowers development, and asset quality continues to improve, but considering that short-term interest spread pressure still exists, we gave the 23 year target PB 0.40 times, with a target price of 8.56 yuan, maintaining the “increase in holdings” rating.
The scale is expanding steadily, and interest spreads are marginally declining
The company's total assets, loans, and deposits at the end of '22 were +7.0%, +2.4%, and +9.6% compared to +2.5pct, -0.6pct, and +3.4pct at the end of September. New loans were added in the second half of '22, mainly to the public sector, and there was a drop in pressure on retail sales and notes. The company's home market advantage is stable. In '22, the number of deposits and loans in the Yangtze River Delta region remained the highest among stock banks, +10.1% and +4.7%, respectively, and the growth rates were +2.3pct and +1.3pct at the end of September. At the end of '22, the balance of medium- and long-term loans, green credit, and science and innovation loans for the company's manufacturing industry was +41%, +37%, and +28% year-on-year.
The net interest spread in '22 was 1.77%, compared to January-June to 7bps, mainly affected by the asset side. The return on interest-bearing assets and the cost ratio of interest-bearing debt in '22 were 3.96% and 2.24% respectively, which was the same as January-June to 7 bps; loan yield and deposit cost ratios were 4.55% and 2.10%, respectively, compared to January-June to 11 bp and +4bp.
China's revenue has fluctuated, and investment in technology continues
Mid-year income was -1.5% year-on-year, compared to January-September -0.9 pct. The revenue of the investment banking business in '22 was +2.2% year on year, +4.4pct compared to January-June; the company gave full play to its license advantages and underwrote debt financing instruments of 423.5 billion yuan in '22, ranking at the forefront of the market. Bank card revenue in '22 was +12.0% year on year, compared to January-June -0.3 pct. The credit card business grew steadily, with credit card revenue and transaction volume in '22 +14.9% and +9.1%, respectively; at the end of '22, the number of cards in circulation was 51.33 million, +6.0% year on year, with a loan balance of 433.7 billion yuan, +4.2% year on year.
The company firmly promoted digital transformation, investing 7.01 billion yuan in technology in '22, +4.5% year on year; 6447 technical personnel, +0.3% year on year. The cost to revenue ratio of the company in '22 was 27.9%, +1.7pct over the previous year.
Bad indicators have both declined, and credit costs have declined
The non-performing rate and provision coverage rate at the end of '22 were 1.52% and 159%, compared to -1 bp and +4pct at the end of September; the non-performing loan balance and non-performing loan ratio declined quarterly for three consecutive years. The non-performing rate for public real estate at the end of '22 was 3.06%, +31 bps over the previous year. The annualized bad generation rate for 22Q4 was 1.27%, compared to Q3-0.58pct. The credit cost for 22Q4 was 1.48%, -0.14pct compared to the previous year. The capital adequacy ratio at the end of '22 and the core Tier 1 capital adequacy ratio were 13.65% and 9.19% respectively, compared to -0.06pct and -0.07pct at the end of September. In 2022, the company plans to pay a dividend of $0.32 per share, a cash dividend ratio of 20.50% (2021:25.26%), and a dividend rate of 4.24% (as of 2023/04/18).
Risk warning: Economic recovery fell short of expectations, and the deterioration in asset quality exceeded expectations.