\u3000\u3 Guangdong Shaoneng Group Co.Ltd(000601) 166 Industrial Bank Co.Ltd(601166) )
Events:
On March 24, Industrial Bank Co.Ltd(601166) released the annual report of 2021. In 2021, the operating revenue was 221236 billion yuan, yoy + 8.9%, and the net profit attributable to the parent company was 82.680 billion yuan, yoy + 24.1%.
Comments:
The profit growth rate continued to maintain more than 20%. The year-on-year growth rates of Industrial Bank Co.Ltd(601166) revenue, profit before provision and net profit attributable to parent company in 2021 were 8.9%, 6.7% and 24.1% respectively, and the growth rates were 0.83, -1.04 and 0.65 PCT respectively compared with the first three quarters of 21 years. By splitting the performance: (1) the contribution of interest margin and non interest income to profit was – 16.8% and 23.6% respectively, which were improved by 2.51 and 1.81 PCT respectively compared with the first three quarters, which was the main reason to support the further improvement of profit growth. (2) The contribution of scale and provision to the profit in 2021 was 20% and 12.4% respectively, down 0.97 and 0.12 PCT respectively compared with the first three quarters.
The total amount of credit remained stable, the margin of deposit growth improved, and demand deposits increased significantly. On the asset side, in 2021, Industrial Bank Co.Ltd(601166) total assets increased by 9.0% year-on-year, down 2.53pct from the third quarter. Loan offering presents three characteristics:
First, the total amount remained stable. In 2021, the credit supply increased by 11.7% year-on-year, and the growth rate was basically the same as that in the first three quarters.
Second, bill financing has been strengthened. In 2021, the year-on-year growth rates of corporate and retail loans were 8.8% and 9.7% respectively, down 2.27 and 0.59 PCT respectively compared with the first three quarters, while the year-on-year growth rate of bill financing was 56.2%, up 28.35 PCT compared with the first three quarters. In a single quarter, corporate and retail loans increased by -3.858 billion and 67.541 billion respectively in the fourth quarter of 2021, with a year-on-year decrease of 42.054 billion and 2.934 billion. Bill financing increased by 51.149 billion, an increase of 57.195 billion year-on-year. This is also related to the increasing downward pressure on China’s macro economy and insufficient credit demand in the fourth quarter of 2021, which made the company moderately slow down the speed of asset expansion and flexibly adjust the narrow credit scale through bill financing.
Third, the growth of housing related loans slowed down. In the second half of 2021, the company’s real estate loans increased by – 27.748 billion, a year-on-year decrease of 43.649 billion, and mortgage loans increased by 29.868 billion, a year-on-year decrease of 52.798 billion. Housing related loans increased by 2.12 billion, a year-on-year decrease of 96.447 billion, accounting for 32.93% of all loans, a decrease of 1.69 percentage points compared with the first half of 2021.
On the liability side, total liabilities increased by 8.8% year-on-year in 2021, and the growth rate of liabilities decreased by 2.32 PCT compared with the end of the third quarter. Among them, deposits increased by 6.6% year-on-year, with a growth rate of 0.45pct higher than that at the end of the third quarter. Since 2021, the deposit growth of joint-stock banks has weakened, mainly because under the background of regional economic differentiation, the deposit of joint-stock banks has been severely squeezed by state-owned banks and regional banks. The deposit growth of Industrial Bank Co.Ltd(601166) year-round has also slowed down, but 4q21 has improved, driving the optimization of debt structure. The proportion of general deposits has increased by 0.70pct to 54.5% month on month. In terms of deposit structure, demand deposits increased by 166.05 billion in the fourth quarter of 2021, an increase of 65.593 billion year-on-year, and the increase of demand deposits in the fourth quarter exceeded that of the whole year.
Margin margin improved in the fourth quarter. In 2021, the company’s net interest margin was 2.29%, a decrease of 3bp compared with the first half of the year. Among them, the loan yield was 5.03%, a decrease of 8bp compared with the first half of the year, while the deposit cost rate was 2.22%, an increase of 1bp compared with the first half of the year, that is, the narrowing of the deposit loan interest margin was the main reason for the decline of the company’s interest margin. In a single quarter, the calculation results show that the interest margin in 2021 is 1.81%, an increase of 3bp compared with the first three quarters. We speculate that the main reasons for the marginal improvement of interest margin in the fourth quarter are: first, stabilize the interest margin through asset structure optimization and adjustment. At the end of the fourth quarter of 2021, the proportion of retail loans was 42.5%, an increase of 0.5 percentage points compared with the end of the third quarter. In addition, when the growth of mortgage loans slowed down, the company appropriately increased the investment of retail non mortgage loans such as credit cards. Second, demand deposits increased significantly in the fourth quarter, accounting for 41% of all deposits, about 3 percentage points higher than that at the end of the third quarter. The optimization of debt structure also played a role in stabilizing the interest margin.
Non interest income performed well. The year-on-year growth rate of non interest income in 2021 was 26.7%, an increase of 1.9pct compared with the first three quarters. Considering the further improvement of the base in the fourth quarter of 2020, the annual non interest income in 2021 still achieved this level, reflecting the strong development of the company’s medium income business. From the perspective of structure, under the high base effect, the year-on-year growth rate of net handling fee and other commission income was 13.2%, down 13.13pct compared with the first three quarters, but the year-on-year growth rate of commission sales income was 44.6%, which remained at a high level, and the year-on-year growth rate of card business was 12.9%, which was the main driving force supporting the growth of handling fee income of the company. The year-on-year growth rate of net other non interest income was 50%, a significant increase of 27.28pct compared with the first three quarters, of which the income from changes in fair value increased by 2.178 billion in the whole year, an increase of 8.454 billion compared with 2020. We speculate that it may be related to the decline of bond interest rate, resulting in the conversion of stock bond assets into floating profit in the early stage, which further pushed up the level of net other non interest income.
The overall asset quality improved, and the provision coverage increased 6pct to 269%. The non-performing loan ratio of the company was 1.10% at the end of 2021, with a year-on-year and month on month decrease of 15bp and 2bp respectively, showing a quarterly decline since 2020. Concern loans increased by 4.084 billion compared with the end of the third quarter, and the non-performing + concern rate was 2.62%, an increase of 3 BP compared with the end of the third quarter. The main reason for the increase of concerned loans may be related to the strict implementation of credit card asset quality classification standards and recognition procedures required by the CBRC. The provision coverage rate in 2021 was 268.7%, an increase of 5.67 PCT over the end of the third quarter of 21. The loan allocation ratio was about 2.96%, about 2bp higher than that at the end of the third quarter, and the risk offset ability was further enhanced.
The issuance of convertible bonds helped improve the core tier 1 capital adequacy ratio. At the end of 2021, the company completed the issuance of 50 billion yuan of convertible bonds. The initial conversion price of this issuance of convertible bonds was 25.51 yuan / share, and the audited net assets per share in the latest period was 25.50 yuan / share. The conversion price shall be determined according to the principle of not lower than the audited net assets per share in the latest period. According to the regulations on additional supervision of systemically important banks (for Trial Implementation) issued by the people’s Bank of China, Industrial Bank Co.Ltd(601166) was selected into d-sibs and applied the additional capital requirement of 0.75%. By the end of September 2021, the core Tier-1 capital adequacy ratio of Industrial Bank Co.Ltd(601166) group was 9.54% and the safety margin was 1.29pct, of which the core Tier-1 capital adequacy ratio of parent bank was 9.11%, close to the minimum regulatory requirement of 8.25%. In the future, the company may have strong demands for equity conversion. The conversion of debt to equity will consolidate the company’s capital base, expand the company’s business space, and have greater potential growth momentum in performance. After the issuance, if the core tier 1 capital is included in the proportion of 5% ~ 10%, the core tier 1 capital adequacy ratio will be improved by 4bp ~ 8bp under static calculation.
Earnings forecast, valuation and rating Industrial Bank Co.Ltd(601166) strategic positioning is clear, and the new management highly recognizes the “business + investment bank” strategy, which has laid a solid foundation for the continuity and stability of the company’s strategic implementation. The fundamental performance of the company is excellent, the profit growth rate remains above 20%, the asset quality is generally good, the recognition standard is further tightened, the proportion of public real estate loans in the balance sheet is relatively low, and the risk mitigation of real estate enterprises will help to further improve the asset quality. The company’s credit supply remains stable, the debt structure continues to be optimized, and the proportion of demand deposits increases significantly, which will help to continuously improve the interest margin. In the early stage, the company’s share price has been adjusted more along with the real estate sector. At present, the policy bottom of the real estate market has been relatively clear, and the subsequent real estate sales and mortgage loan investment are expected to recover. Considering that the current Pb (LF) valuation is at a relatively low level of 0.7 times, it is expected that the share price will have a certain rebound space in the future. Based on this, we raised the EPS forecast for 20222023 to 4.56 yuan (up 1.56%) / 5.13 yuan (up 3.43%), and increased the EPS forecast for 2024 to 5.74 yuan. The current share price corresponding to Pb is 0.61/0.54/0.48 respectively, maintaining the “buy” rating.
Risk tip: credit easing is less than expected, and the downward pressure on the economy is increasing.
