AGRICULTURAL BANK OF CHINA(1288.HK)：REPORTED HIGHER EARNINGS GROWTH AMONG LARGE BANKS IN 2024-格隆汇

机构：中银国际
研究员：Eric HU/Emma XING

Agricultural Bank of China (ABC) continued to report positive earnings growth in 4Q24 after earnings increased in 9M24, which is not easy for a large bank under the complicated economic environment. Its attributable net profit increased 9.2% YoY in 4Q24 and 4.7% in 2024, against growth of 3.4% YoY in 9M24. ABC’s 2024 results exceeded large banking sector performance. Its net interest income increased 1.6% YoY in 2024, better than 1.0% YoY growth in 9M24, mainly due to steady growth in interest-earning assets and stable NIM. As of end September 2024, its loans/deposits increased 10.3%/4.9% from end 2023. Its asset quality improved as NPL ratio declined in 4Q24. ABC maintained strict NPL recognition and its allowance to NPLs ratio might be still at the higher level among China’s big banks in 2024.
ABC’s county-level business contribution may gain more market shares in rural financial business in the future.
Key Factors for Rating
Asset quality improved in 4Q24. Its NPL ratioreached 1.3% at end December 2024, down from 1.32% at end September 2024 and 1.33% at end December 2023. ABC maintained strict NPL recognition as its allowance to NPLs reached 299.6% at end December 2024, against 303.4% at end September 2024 and 303.9% at end December 2023. We expect its NPL ratio to drop to 1.28% in 2025.
NIM stabilised in 4Q24. As one of the largest banks in China, ABC strengthened its financial support for the real economy and rural area development. We noted that ABC’s NIM stabilised in 3Q24/4Q24 as its NIM reached 1.42% in 2024 and 1.45% in 9M24, down 18bps and 15bps from 2023. We expect its NIM to drop 4bps in 2025.
Net fee and commission income increased in 4Q24. Its net fee and commission income increased 4.3% YoY in 4Q24 after dropping 7.6% YoY in 9M24, mainly due to improving risk appetites of its clients.
Valuation
Its H shares are now trading at 0.55x 2025E P/B and its dividend yield may reach about 5.8% in 2025. Given its solid asset quality, decent ROE and attractive dividend yield, we believe the bank is undervalued. We expect its ROAE to reach 10.3% in 2025. We increased our target price from HK$5.64 to HK$6.1, based on 0.7x 2025E P/B. Maintain BUY rating.
County-level business contribution increased in 2024. We noted that its operating income of county-level business increased 5.4% YoY in 2024. Meanwhile, its net outstanding loans for county-level business increased 12.7% YoY in 2024. Furthermore, its pre-tax profit from county-level business increased 21.9% YoY and accounted for 58.3% of its total pretax profit in 2024, up from 49.6% in 2023. We believe that PBOC may continue to use targeted easing policy to boost credit support for rural area development in the future, which should bode well for ABC. ABC is one of the key beneficiaries of China’s strengthened supervision of small and medium- sized banks. ABC may gain more market shares in rural financial business in the future.