CITIC SEC: It is expected that the banking and other high certainty sectors will continue to perform well, with optimistic absolute return potential.

CITIC SEC released a research report stating that by 2024, the data of payment business in China shows that the payment system is operating smoothly, with overall growth in the number of bank accounts, bank card credit scale, and payment transactions. However, it is important to note that there has been an increase in credit card delinquency issues. In terms of bank sector investment, the basic fundamentals of banks have been stable recently, with an expected active balance sheet expansion in the first quarter, and the decline in interest margins is within expectations, with stable financial performance. Against this backdrop, the short-term trend of bank stocks is more influenced by market style factors, while the medium-term trend continues to benefit from a reassessment of business models. Due to the extreme performance of the capital market style last week, it is expected that high certainty sectors such as banks will perform well in the future, with an optimistic absolute return potential. In terms of individual stock portfolios, two main recommendations are: 1) steady returns from dividend contributions, selecting stocks with stable earnings growth, stable dividend rates, stable asset quality, and low valuation fluctuations; 2) companies with excellent business models, with a potential return to normal valuation premiums: selecting stocks with high and strong ROE, and currently low valuation premiums. Key points from CITIC SEC are as follows: - Decreasing trend in credit card issuance, slight decrease in bank card transaction amounts. - Credit card issuance has significantly decreased: As of the end of 2024, a total of 9.913 billion bank cards were issued nationwide, a year-on-year increase of 1.3%. Among them, there were 727 million combined credit and debit cards, a year-on-year decrease of 5.14%. The issuance of credit cards has been on a downward trend for nine consecutive quarters. On one hand, since 2022, the regulation of credit card business has become stricter, requiring commercial banks to strengthen credit card business management, strictly regulate card issuance marketing activities, and clear dormant cards; on the other hand, commercial banks' credit card business is gradually transitioning from "territorial expansion" to a new stage of fine management. - Slight decrease in bank card transaction amounts: In 2024, a total of 564.229 billion bank card transactions took place nationwide, with an amount of 99.253 trillion yuan, a year-on-year change of +6.24%/-8.53%. Among these, there were 357.178 billion consumer transactions, totaling 13.373 trillion yuan, a year-on-year change of +16.18%/-1.70%. The average consumption amount per card was 13,500 yuan, a year-on-year decrease of -2.88%. Both total consumption amount and average card consumption amount decreased slightly year-on-year. - Basic stability in bank card credit scale, slight deterioration in credit card delinquency data. - Basic stability in bank card credit scale, with a slight decrease in credit usage rate: As of the end of 2024, the total credit line for bank cards was 22.9 trillion yuan, a year-on-year increase of 1.04%; the total credit balance for bank cards was 8.71 trillion yuan, a year-on-year increase of 0.25%; the credit usage rate for bank cards was 38.03%, a year-on-year decrease of 0.31 percentage points. - Slight deterioration in credit card delinquency data: As of the end of 2024, the total amount of credit card delinquencies that have been unpaid for half a year was 123.964 billion yuan, an increase of 25.829 billion yuan year-on-year, a increase of 26.32%. The delinquent amount accounted for 1.43% of the total credit balance for credit cards, an increase of 0.3 percentage points from the end of 2023. The credit card delinquency data has slightly deteriorated year-on-year, and the bank speculates that in the environment of weak economic recovery in 2024, the repayment ability of residents has been somewhat damaged. - Slight growth in total bank electronic payments, significant decrease in average transaction amounts for mobile payment business and non-bank payment institutions processing online payment business. - Slight growth in total bank electronic payments: In 2024, banks processed a total of 301.668 billion electronic payment transactions, amounting to 3426.99 trillion yuan, with year-on-year changes of +1.86%/+0.93% (compared to +6.16% / +9.17% in 2023). - Significant decrease in average transaction amounts for mobile payment business: In 2024, banks processed a total of 210.98 billion mobile payment transactions, amounting to 563.70 trillion yuan, with year-on-year changes of +13.95%/+1.51%, and an average transaction amount of 2671.8 yuan, a year-on-year decrease of 10.92%. - Significant decrease in average transaction amounts for online payment business processed by non-bank payment institutions: In 2024, non-bank payment institutions processed a total of 1.34 trillion online payment transactions, amounting to 331.68 trillion yuan, with year-on-year changes of +8.94%/-2.52%, and an average transaction amount of 247.52 yuan, a year-on-year decrease of 10.52%. - Slight decrease in net profit of commercial banks in 2024, with stable risk indicators. According to the disclosure from the China Banking and Insurance Regulatory Commission, - Slight decrease in industry net profit: In the full year of 2024, commercial banks achieved a total net profit of 2.3 trillion yuan, a year-on-year decrease of -2.3%, with state-owned banks, joint-stock banks, and city commercial banks and rural commercial banks experiencing changes of -0.47% / +2.37% / -13.13% / -9.75% respectively. The profit performance of state-owned banks was stable and improving, while city and rural commercial banks exhibited more significant profit declines. - Stable quarter-on-quarter net interest margins: The industry's fourth quarter net interest margin in 2024 was 1.52%, a decrease of 1bp quarter-on-quarter and 17bps year-on-year, with state-owned banks, joint-stock banks, city commercial banks, and rural commercial banks recording net interest margins of 1.44%/1.61%/1.38%/1.73% respectively in the fourth quarter of 2024, with quarter-on-quarter changes of -0.3bp/-2bps/-5bps/+1bp, and year-on-year changes of -18bps/-15bps/-19bps/-17bps respectively. - Stable asset quality and risk coverage capacity: As of the end of 2024, the non-performing loan ratio for commercial banks was 1.50%, a decrease of 0.05 percentage points from the end of the previous quarter; the provision coverage ratio was 211.19%, an increase of 1.71 percentage points from the end of the previous quarter, with the industry's overall risk indicators remaining stable. Risk factors: - Sharp decline in macroeconomic growth rates; - Unexpected deterioration in bank asset quality; - Unexpected changes in regulations and industry policies; - Companies not meeting expectations in executing their development strategies.