Introduction to this report:
At the end of 2022, the Bank of Beijing's asset quality indicators such as non-performing rate, attention rate, and overdue rate improved dramatically, exceeding market expectations, and achieved profit growth to more than double digits without sacrificing provisions.
Key points of investment:
The investment proposal takes into account that the improvement in asset quality of the Bank of Beijing exceeded expectations, and adjusted the 2023-2025 net profit growth forecast to 14.24% (+7.49pc)/10.64% (+3.57pc)/9.42% (new). The corresponding EPS was 1.18 (+0.01) /1.32 (+0.07) /1.46 (new) yuan.
The target price was raised to 5.50 yuan, corresponding to 0.47 times PB in 2023, maintaining the increase in holdings rating.
Q4 Revenue was hampered by non-interest business. The Bank of Beijing's Q4 quarterly net revenue from handling fees and other non-interest net income decreased by 10.1% and 40.5%, respectively, which was the main reason that dragged down revenue growth (-9.7% in a single quarter, 0% for the whole year), which is in line with industry trends.
The improvement in asset quality has exceeded expectations. The defect rate at the end of 2022 was 1.43%, a sharp drop of 16 bps from the end of Q3. Judging from the marginal rise in the retail non-performing rate due to the impact of the epidemic and the scale of non-performing write-offs in the second half of the year being 3.5 times that of the first half of the year, it is presumed that the public stock of risky assets was fully disposed of. There was also a clear improvement in forward-looking indicators. The year-end attention rate fell 36 bps to 1.61% from the middle of the year; the overdue rate fell 29 bps to 2.26%, and the bad deviation fell to a good level of 79%; and the bad generation rate in the second half of the year was 0.57%, down 26 bps from the first half of the year.
Credit costs have declined, and the ability to release profits has improved. The provision coverage rate at the end of 2022 increased 9.8pc to 210% from the end of Q3, and the Q4 quarterly annualized credit cost fell to 0.46%, the lowest single-quarter level in the past three years. Without sacrificing provisions, Bank of Beijing's Q4 quarterly profit increased 33.5% year-on-year, raising the annual profit growth rate to more than double digits.
Risk warning: There is a risk that the regional economy will stall and downside, and asset quality disposal falls short of expectations.