The Zhitong Finance App learned that Changjiang Securities released a research report stating that during the downward cycle of real estate, economic recovery is not very flexible, risk-free interest rates continue to decline, and undervalued dividend assets continue to be allocated by the market. The valuation system for bank stocks underwent profound changes at the same time, weakening the procyclical nature and strengthening the dividend attribute. Under the new investment paradigm, major state-owned banks rely on stability and principal credit, and have a clear and firm bottom line value. They have become sector pricing centers, and dividend rates are anchored in risk-free interest rates.

The main views of Changjiang Securities are as follows:

Market review: High-dividend banks rose across the board in the first quarter

Looking ahead to the end of 2023, economic expectations are still generally weak, banking fundamentals are low, and the market believes that the bank stock market needs to wait for economic expectations to recover. However, dividend strategies have spread, and major state-owned banks have led high-dividend bank stocks to rise across the board, and the bank stock investment paradigm has changed markedly. At the same time, the dividend valuation system for bank stocks was further revised. In 2023, high valuations generally declined and undervaluation generally rose. Among them, the valuations of heavy institutional stocks represented by the Bank of Chengdu and the Bank of Jiangsu were also drastically adjusted. However, the dividend ratio of such banks is leading the industry, and they are still very attractive within the dividend valuation system. As a result, they rose across the board in the first quarter of this year, and dividend ratios declined markedly.

Macroeconomics: Total volume has stabilized marginally, and credit is facing a slowdown

Economic margins have stabilized, but short-term recovery is not strong. The PMI rebounded to 50.8% in March, exceeding expectations. Despite certain seasonal factors, exports have picked up since this year, and the decline in growth in March was mainly due to a high base. The boom in the manufacturing industry has benefited from improved export demand, and investment growth has picked up slightly. However, the downward pressure on real estate sales and investment growth is still heavy, and the effects of the relaxation of a series of sales-side policies are not obvious. Infrastructure investment benefits from special treasury bonds and the “three major projects,” but the flexibility of growth is constrained by local government debt pressure, and the weakening of traditional “steady growth” momentum has limited the intensity of short-term economic recovery.

Credit clearly decreased by 1.1 trillion yuan year-on-year in the first quarter, in line with expectations. The year-on-year balance growth rate at the end of March had already declined to 9.6% (10.6% at the end of 2023). Since the first quarter of last year was the highest base in history, and traditional momentum such as real estate and infrastructure weakened, the credit slowdown was in line with the laws of the economy. At the beginning of the year, Changjiang Securities predicted that the credit growth rate for the full year of 2024 would be 9.5%, with a year-on-year decrease of about 300 billion yuan. Combined with the actual investment situation in the first quarter, the forecast growth rate was slightly lowered to 9.3%, and the increase decreased by about 600 billion yuan year-on-year. The second to fourth quarter is expected to increase year-on-year due to the lower base figure last year. The first quarter with the greatest pressure on the base is over.

Bank operations: performance decelerated across the board, and interest spreads continued to narrow

The overall revenue growth rate of banks in 2023 was lower than in 2022. Of the 31 banks that disclosed their results, 15 declined year-on-year, reflecting the downward trend in the economy and the pressure of the interest rate cut cycle. Net profit attributable to mother was dragged down by revenue and decelerated across the board in 2023, with four banks falling year on year. It is expected that net interest spreads and revenue will continue to be under pressure in 2024, there is still room for decline in loan interest rates, and there is still a possibility that LPR will be lowered during the year.

However, interest rates on deposits are expected to improve substantially this year, and the rise in interest rates on deposits in large banks has bucked the trend in the past two years, putting pressure on net interest spreads.

In terms of asset quality, the non-performing rate of most banks in 2023 stemmed from aggressive write-off and disposal plus rapid loan expansion. The real estate to public defect rate entered the disposal cycle. The non-performing rate of some banks declined sequentially, but the asset quality index of retail loans fluctuated.

Investment advice:

Among bank stocks with stable dividends, the quarterly report is not expected to affect the valuation repair process of major state-owned banks. The focus is on recommending Bank of Communications, and focusing on other major state-owned banks, China Merchants Bank (600036.SH), and Bank of Xiamen (601187.SH). Some high-performing Hakuba stocks are undervalued due to lower dividend ratios. We mainly recommend Changshu Bank (601128.SH) and focus on Ruifeng Bank (601528.SH). The leading urban commercial sector with dividend growth has been leading the industry in terms of performance growth for a long time. The absolute level has maintained a high growth rate, and dividend rates that continue to rise are still very attractive. Individual stocks recommend Bank of Jiangsu (600919.SH) and Bank of Chengdu (601838.SH). Undervalued, high-dividend rate bank stocks with improved dividends.

Risk warning

1. Actual social financing demand continues to be sluggish; 2. The downward pressure on the economy has increased, and the quality of bank assets has deteriorated markedly.