Defensive Highlights Grasp the two main lines of bank stocks

Financial Investment News reporter Lin Ke

The prominent defensiveness has made bank stocks clearly resilient to the recent rapid market pullback. From the perspective of valuation level, the current valuation of the banking sector is less than 0.5 times the price-to-book ratio, which is lower than the 0.8 times price-to-book ratio of the historical valuation center of the industry in the past ten years.

Since 2023, as corporate earnings expectations continue to adjust, the high-dividend strategy has attracted much attention from the market. Among them, the decline in long-term interest rates is an important factor driving the price performance of high-dividend assets. The high dividend yields and extremely low valuations of bank stocks have become the preferred choice for funds, coupled with the rising demand for market defense, which has boosted the market performance of the entire banking sector. Guo Yi, an analyst at Wanlian Securities, pointed out that in the high-dividend strategy, the supporting factors at the denominator end may have been more reflected, and the stability of the numerator has become an important logic for high-dividend stock selection. From a long-term perspective, the profit growth of the banking industry as a whole is bottoming out, and the stability of earnings will gradually be reflected. From the perspective of dividends, the increase in the dividend ratio is conducive to the rise in the valuation of bank stocks. However, due to the limitations of the bank's own business model, the net profit will be divided into two parts, and the retained earnings part will be used as an important capital supplement, which will promote the expansion of business and scale in the future. Considering the current dividend yield and valuation level of bank stocks, it is expected that the defensive nature of the sector will remain relatively obvious. Subsequently, with the gradual recovery of the economy and the improvement of credit risk, it may bring a new round of market catalyst.

Chen Shaoxing, an analyst at Industrial Securities, pointed out that the banking sector showed a diffusion of high dividends, and high-dividend bank stocks rose across the board, especially regional banks with "high dividends + stable growth in performance + outstanding valuation and cost performance". In the second quarter of 2024, the performance of the baton dividend continued to be strong, but the style has changed, from the simple trading of high dividends to the past performance of the growth style, the valuation of the top performance bank has been restored to nearly 1 times the price-to-book ratio. In terms of individual stocks, it is recommended to focus on two main lines. First, stocks with "stable performance growth + high dividend yield" are expected to become the basic plate of dividend strategy allocation, focusing on Agricultural Bank of China, Bank of Communications, China Merchants Bank, Industrial Bank, Bank of Beijing, and Bank of Shanghai; The second is the stocks with "good performance growth + dividend yield trend improvement", focusing on Bank of Hangzhou, Bank of Jiangsu, Bank of Nanjing, Bank of Chengdu, Qilu Bank, and Changshu Bank.

Agricultural Bank of China (601288) dividend advantage is still prominent

The company is deeply engaged in the "three rural" areas, with distinctive characteristics of inclusive small and micro enterprises, endowed with a strong credit grasp and a solid retail deposit foundation. Relying on the excellent county-level financial system, ABC's county-level and inclusive small and micro loans will increase by 19.8% and 39% year-on-year respectively in 2023, supporting the credit prosperity that is better than that of its peers, and maintaining the first place among major banks in terms of growth rate. Looking forward to the next stage, with the continuous promotion of the rural revitalization strategy and the accelerated development of the county economy, the company is still expected to maintain a better credit prosperity than its peers in the "three rural" and inclusive small and micro tracks. Shenwan Hongyuan Securities pointed out that in the context of the regulator's guidance on the layout of "five new chapters", the companies that take the lead in the layout of the inclusive small and micro track are still expected to perform well in the new economic cycle. In the long run, there is a direction for balance sheet expansion and a foundation for provisions, which is expected to ensure that the company continues to achieve the performance of leading major banks. In the short term, under the high dividend strategy, the company's stable dividend advantage is still prominent, and it can reap absolute returns.

China Merchants Bank (600036) has a deep retail "moat".

The company's revenue in the first quarter was 86.4 billion yuan, down 4.65% year-on-year, and the net profit attributable to the parent company was 38.1 billion yuan, down 1.96% year-on-year. Although the performance in the first quarter was under pressure, the company's profitability was at the forefront of its peers. At the end of the period, the company had 199 million retail customers and managed retail AUM of more than 13.86 trillion yuan, an increase of 1.02% and 4.02% respectively from the beginning of the year. Among them, there were 4.87 million golden sunflower and above customers, with AUM under management of about 11.24 trillion yuan, an increase of 4.92% and 3.91% respectively from the beginning of the year, and the customer group structure was further optimized. Guosen Securities pointed out that in terms of asset quality, the company's non-performing loan ratio at the end of the period was 0.92%, down 3 basis points from the end of September 2023. The annualized NPL generation rate in the first quarter was 1.03%, down 6 basis points year-on-year, and the asset quality performance was stable. Due to the slow recovery of retail business and the drag down of insurance product fee reductions, the company's performance was under pressure in stages. However, the company's retail "moat" is deep, and with the gradual recovery of large retail, it is expected that the performance will gradually improve.

The revenue growth rate of Industrial Bank (601166) turned from negative to positive

The company's revenue growth in the first quarter of 2023 and 2024 will decline by 5.2% and increase by 4.22% respectively. The negative revenue growth rate in 2023 is mainly due to the impact of the one-time income recognition of old wealth management products in 2022 to raise the base, and after excluding this factor, the revenue is basically flat year-on-year. Revenue growth in the first quarter of 2024 turned from negative to positive, mainly due to the narrowing of interest margin decline. In addition, after the restructuring of assets and liabilities, the scale maintained rapid growth, and the net interest income achieved a positive year-on-year growth of 5.1%. At the same time, other non-interest income also had a boosting effect. In the first quarter, the company's revenue exceeded expectations and turned positive, and the performance was basically consolidated. Hua Chuang Securities pointed out that the company's balance sheet restructuring is progressing smoothly, the scale of the asset side has maintained rapid growth, the cost of the liability side has been effectively reduced, and the performance in 2023 may become a low point. As asset quality improves, provisions are expected to feed back profits. At present, the company has the attributes of high dividends, low valuation and low expectations, and still has good investment value.

Bank of Hangzhou (600926) accelerated its loan growth in a single quarter

The company's loans increased by 16.1% year-on-year in the first quarter of 2024 and 14.9% year-over-year in the fourth quarter of 2023. The new loans in a single quarter were 63.7 billion yuan, an increase of 15.5 billion yuan year-on-year, and have reached 60% of the increase in 2023. Corporate credit contributed mainly to the increase, accounting for 93% of new loans in the first quarter. In addition, the company's retail sales increased by 4.4 billion yuan in the first quarter, an increase of more than 10 billion yuan year-on-year, continuing the recovery trend since the fourth quarter of last year. Although the core Tier 1 capital adequacy ratio improved to 8.46% QoQ in the first quarter, it was still in the lower quantile of listed banks. In the future, we should pay attention to the progress of the implementation of capital replenishment plans such as private placement and convertible bonds. Shenwan Hongyuan Securities pointed out that the company's performance growth rate in the first quarter remained at the forefront of listed banks, which laid an excellent asset quality foundation for long-term attention to risk management and control and forward-looking disposal of risks, and could better support the sustainable release of performance. In the future, it is necessary to focus on tracking the trend of interest margin stabilization and the process of core Tier 1 capital replenishment, which is the key to the stable performance of revenue.

Bank of Jiangsu (600919) has entered a period of high-quality growth

The company's revenue in the first quarter of 2023 and 2024 increased by 5.28% and 11.72% year-on-year respectively, and the net profit attributable to the parent company increased by 13.25% and 10.02% year-on-year respectively. In the fourth quarter of 2023 and the first quarter of 2024, revenue increased quarter-on-quarter, and the growth rate of net profit attributable to the parent company slowed down quarter by quarter. Huaan Securities pointed out that from the supply side, the company's business resilience is strong, the asset quality continues to improve, and the growth is prominent compared with banks of the same scale and city commercial banks. From the perspective of demand, the credit boom in Jiangsu is relatively high, the competition among financial institutions is fierce, the company has outstanding advantages in corporate business, strong balance sheet expansion, continuous structural optimization, and endogenous sustainable growth potential. In October 2023, the convertible bond to equity swap will be completed, and the new management will be adjusted in place in 2024.

Bank of Nanjing (601009) has a higher dividend yield than its peers

In the first quarter, the company benefited from the high year-on-year growth in intermediate business revenue, and the decline in core revenue narrowed significantly, supporting the steady growth rate of revenue. On the asset side, the company's retail pricing was extremely resilient, focusing on public placement in the first quarter, and asset pricing rebounded significantly. On the liability side, the company strengthened cost control, the proportion of demand deposits continued to rise, and the cost of debt improved. The non-performing ratio of retail loans peaked and fell, asset quality continued to consolidate, and the level of provisions remained high. In addition, the cash dividend ratio in 2023 will increase to 31.91% year-on-year, and the corresponding dividend yield will be 5.94%, which is higher than the peer level. China Securities pointed out that benefiting from the extremely strong credit demand in Jiangsu and the continuous deepening of the implementation of the retail strategy, the company's scale growth is expected to continue to maintain a double-digit level. In addition, with the sequential improvement of intermediate business revenue, it is expected that the company's annual revenue is expected to achieve positive growth, and the continuous consolidation of asset quality and a strong provision foundation will also provide a guarantee for the company's steady growth in performance throughout the year.

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