Agricultural Bank of China - 1H24 results held steady
- Upgrade to BUY with TP revised up to HKD 3.9; strongest 1H24 earnings among peers with valuation now more reasonable
- 1H24 net profit increased 2% y/y to RMB136bn, slightly beat
- Maintaining the highest loan volume growth among our covered banks while NIM also showed a q/q expanding trend in 2Q24
- Stable asset quality with NPL ratio dropping 1bp h/h to 1.32%
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1H24 revenue increased 0.4% y/y to RMB 367bn and net profit to shareholders increased by 2% y/y to RMB136bn, slightly above market expectations. 1H24 NIM dropped by 21bps y/y to 1.45%, while showing a recovery trend vs. 1.44% in 1Q24. Total loan balance increased by 7.8% from end FY23 to RMB24.4tn. On the asset quality side, NPL ratio dropped 1bp h/h, flat q/q, at 1.32%. NPL coverage ratio remained largely unchanged at Dec 23’s level of 303.9%. CET-1 ratio remains at a healthy level of 11.1% and annualised ROE dropped 0.68ppt y/y to 10.75%.
Showing a more balanced growth between volume and pricing
ABC has always been reporting the highest loan volume growth in recent years. It’s widely exposed to county and rural areas in China, where credit demand is less affected by economy cycles. By the end of 1H24, total loans in County Areas amounted to RMB9.6tn, up 9.4% vs. end FY23, with a rising proportion in ABC’s domestic loans to 40.1%. The balance of loans for sufficient supply of food and major agricultural products and related fields, rural industries, and rural construction and related fields amounted to RMB994.5bn, RMB2.26tn, and RMB2.22tn, respectively, representing increases of 17.8%, 22.8%, and 13.6% vs. end FY23.
Previously, we had concerns on its pricing while aggressively expanding asset scale. ABC showed the highest NIM y/y drop among peers in several quarters in FY23. In 1H24, however, we saw an upside surprise in its NIM performance. NIM dropped 21bps y/y in 1H24, the smallest drop among the Big Four, indicating that volume growth is not from sacrificing pricing. We estimate a c.3bps q/q NIM expansion in 2Q24.
We view the better-than-peers’ NIM trend as stemming mainly from the improvement of balance sheet structure and lower funding costs. On the asset side, the gross balance for low-cost discounted bills dropped by c.28.6% h/h by the end of 1H24. On the liability side, funding cost in 1H24 dropped 8bps to 1.7%. Average rate for new issued time deposits dropped from 2.16% in FY23 to 1.85% in 1H24. Following better-than-expected NIM performance in 1H24, we revised up our NIM assumptions for FY24F by 2bps to 1.42% and raised our FY24F earnings assumption by 1%.
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