The Zhitong Finance App learned that Ping An Securities released a research report saying that the average dividend rate in the banking sector in the past 12 months is at a historically high premium level compared to risk-free interest rates measured by 10-year treasury bond yields, and continues to expand, and dividend attractiveness continues to increase. Currently, the static PB of the sector is only 0.57 times, and the corresponding implied defect rate exceeds 15%, and the margin of safety is sufficient. Looking at the whole year, the restoration of consumer spending tendencies and risk appetite is still worth looking forward to, and has become a catalyst for the sector's profit and valuation recovery. From the perspective of bank stock investment, continue to pay attention to the allocation value of the banking sector as a high dividend target. Continued interest rate cuts and an increasingly serious “asset shortage” have had a significant negative impact on bank operations. However, in terms of stock allocation, the continued decline in risk-free interest rates has further highlighted the value of banks' fixed income allocations based on high dividends.

Individual stock recommendations: large and medium-sized banks with high dividends (ICBC (601398.SH), Postbank (601658.SH), Zheshang (601916.SH), and high-quality regional banks with better growth than peers (Suzhou (002966.SZ), Chengdu (), Changsha (Dubai), Jiangsu (Sichuan), Changshu (Singapore)). 601838.SH 601577.SH 600919.SH 601128.SH

The main views of Ping An Securities are as follows:

Market trend review:

The banking sector rose 4.80% in April '24, outperforming the Shanghai and Shenzhen 300 Index by 2.91 percentage points, and ranked 2nd in the 30 sectors according to the CITIC Tier 1 industry ranking. Bank of Hangzhou (+16.1%), Bank of Changshu (+11.3%), and Bank of Qilu (+11.2%) ranked in the top three.

Macro and liquidity tracking:

1) The manufacturing PMI for April was 50.4%, down 0.4 percentage points from the previous month. Among them, the PMI for large/medium/small enterprises was 50.3%/50.7%/50.3% respectively, up -0.8 pct/+0.1 pct/+0pct from the previous month.

2) In terms of policy interest rates, the 1-year MLF interest rate, 1-year LPR, and 5-year LPR in April were all the same as last month, at 2.50%, 3.45%, and 3.95%, respectively. The interbank lending rate of 7D/14D/3M in April changed by +1.1BP/-75.2BP/-28.5BP to 2.14%/2.22%/2.37%, respectively, from the previous month. The yield on April 1-year treasury bonds fell 2.97 BP to 1.69% from the previous month, and the yield on 10-year treasury bonds fell 1.27 BP to 2.30% from the previous month.

3) In March 2024, new RMB loans increased by 3.09 trillion yuan, a year-on-year decrease of 800 billion yuan, and the balance increased by 9.2% year-on-year. The scale of social financing increased by 4.87 trillion yuan in March 2024, which is 514.2 billion yuan less than the same period last year. The social finance balance grew 8.7% year on year.

Interest spreads are resilient, and focus on the mid-term dividend process

The disclosure of the 2024/1 quarterly reports of 42 listed banks has been completed. In the 1st quarter of '24, the net profit of listed banks decreased by 0.6% year-on-year, and the growth rate decreased by 2.0pct compared to '23. Looking at the revenue side breakdown, the revenue growth rate of listed banks in the 1st quarter of '24 fell 0.9 percentage points to -1.7% compared to '23. Continued pressure on net interest income and revenue was the main factor dragging down revenue.

Looking ahead to the next quarter of 2024, Ping An Securities believes that the core factors affecting the fundamentals of the sector still come from the domestic economic recovery process. Since the beginning of the year, the domestic economy has shown a positive trend. With the decline in loan repricing and high base effects in the first quarter and the release of deposit interest rate reform dividends, the industry's revenue performance is expected to gradually stabilize, but the increase in upward flexibility still requires attention to the restoration of financial demand from enterprises and residents.

Interest spreads of listed banks continue to be under pressure in the context of declining asset-side interest rates, but the release of cost-side dividends has increased the resilience of interest spreads. Ping An Securities estimates that the 24Q1 annualized net interest spreads of listed banks narrowed by 2BP to 1.49% month-on-month according to the balance at the beginning and end of the period, and the narrowing is clearly slowing down.

It is particularly noteworthy that the four major banks simultaneously issued a board resolution announcing the review and approval of the 2024 mid-term profit distribution related arrangements. The four major state-owned banks all stated that the total cash dividend in 2024 accounts for no more than 30% of the Group's current profit attributable to the Bank's shareholders after tax, and the details need to be further refined and clarified. Considering that the current capital pressure on the industry has eased, the subsequent mid-term dividend situation still requires continuous attention.

Risk warning: 1) The economic downturn has led to a rise in pressure on the asset quality of the industry that exceeds expectations. 2) As interest rates declined, industry interest spreads narrowed beyond expectations. 3) Financial policy supervision risks.