EB SECURITIES: "Technology + dividends" barbell-style allocation strategy may still have an advantage. There still is a continuous need for allocation in the banking sector.

EB Securities released a research report stating that the relatively popular "technology + dividend" dumbbell-type allocation strategy since 24Q4 may still be advantageous. The banking sector as a high-quality high dividend asset still has continuous allocation demand, especially as the "Two Sessions" approach, market expectations for "stable growth" policies may increase. In addition to the fundamental resilience of banks themselves, it is expected that under the logic of stable growth and high dividend, bank stocks under CKH HOLDINGS may still achieve good absolute returns. Event: On February 21, the China Banking and Insurance Regulatory Commission released the main regulatory indicators of commercial banks in the fourth quarter of 2024. The data shows: commercial banks achieved a net profit of 2.3 trillion yuan in 2024, with an average capital profit rate of 8.1%; non-performing loan ratio of 1.5%, down 6 basis points from the end of the third quarter. Comments: The full-year profit growth rate of commercial banks is -2.3%, down 2.8 percentage points from the first to third quarters, but the profit growth rate of state-owned banks has improved. The profit growth rate of state-owned banks improved quarter-on-quarter, while urban and rural commercial banks saw significant decreases in profit growth due to the impact of reform. In 2024, the net profit of commercial banks decreased by 2.3% compared to the previous year, with a decrease in profit growth of 2.8 percentage points from the first to third quarters. In terms of revenue structure, non-interest income accounted for 22.42%, down 0.53 percentage points from the first to third quarters. By institution type, the profit growth rates of state-owned banks, joint-stock banks, urban commercial banks, and rural commercial banks in 2024 were -0.5%, 2.4%, -13.1%, and -9.7% respectively. The profit growth rate of state-owned banks decreased by 0.9 percentage points from the first to third quarters, while joint-stock banks saw an increase of 1.1 percentage point. Urban and rural commercial banks saw decreases in profit growth rates of 16.5% and 12.7% respectively, mainly due to the pressure of operating relatively weak regional local banks, and the intensification of reform risks. In the fourth quarter, the expansion of commercial banks' balance sheets continued to slow down, with state-owned banks continuing to play a leading role in credit expansion. The expansion of commercial bank balance sheets in the fourth quarter of 2024 was stable yet decreasing. At the end of 2024, the total assets of commercial banks increased by 7.2%, down 0.8 percentage points from the end of the third quarter. The year-on-year growth rates of loans and non-loan assets were 7.6% and 6.7% respectively, down by 0.5% and 1.2% from the end of the third quarter; the quarterly loan and non-loan asset increments in the fourth quarter were 1.5 trillion yuan and 2.7 trillion yuan respectively, a decrease of 0.7 trillion yuan and 1.6 trillion yuan year-on-year; the share of outstanding loans was 57.3%, slightly down by 0.2 percentage points from the end of the third quarter. The non-performing loan ratio decreased by 6 basis points to 1.5% from the end of the third quarter, and the coverage ratio slightly increased to 211%. At the end of the year, the non-performing loan ratio and attention ratio of commercial banks decreased by 6 basis points from the end of the previous quarter. At the end of 2024, the balance of non-performing loans of commercial banks was 3.28 trillion yuan, a decrease of 97.7 billion yuan from the end of the third quarter; the non-performing loan ratio of commercial banks was 1.5%, a decrease of 6 basis points from the end of the third quarter; the attention rate was 2.22%, also a decrease of 6 basis points from the end of the third quarter. By bank type, the non-performing loan ratios of state-owned banks, joint-stock banks, urban commercial banks, and rural commercial banks were 1.23%, 1.22%, 1.76%, and 2.8% respectively, a decrease of 2, 3, 6, and 24 basis points from the end of the third quarter. Rural commercial banks saw the most significant decrease in non-performing loans, with a decrease of 58.9 billion yuan from the end of the third quarter, accounting for 60% of the 99.7 billion yuan decrease in non-performing loans in the fourth quarter. This may be related to the acceleration of the reform and risk mitigation of rural small and medium-sized financial institutions since 2024, with further effects becoming apparent. At the current point in time, there is no need to be pessimistic about the banking sector, with support mainly based on the following factors: (1) Economic data continuing to show signs of recovery and the approaching "Two Sessions" may help improve market expectations. The current AI-led technology concept sector remains hot, but from the perspective of the overall macroeconomic fundamentals and corporate profit expectations, it is still in a process of recovery. In this context, the relatively popular "technology + dividend" dumbbell-type allocation strategy since 24Q4 may still be advantageous, and the banking sector as a high-quality high dividend asset still has continuous allocation demand, especially as the "Two Sessions" approach, market expectations for "stable growth" policies may increase. With the fundamental resilience of banks themselves, it is expected that under the logic of stable growth and high dividend, bank stocks under CKH HOLDINGS may still achieve good absolute returns. (2) Insurance funds and industrial capital have an intrinsic dynamic to allocate to the banking sector, and the investment characteristic dominated by "high dividend" is expected to continue. Since the beginning of 2025, insurance funds have maintained their focus on the banking sector, with the Ping An Group continuously releasing announcements of acquiring stakes in high-quality high dividend targets such as ICBC, Postal Savings Bank of China, China Merchants Bank, and Agricultural Bank of China. New China Life Insurance obtained shares of Bank of Hangzhou previously held by the Commonwealth Bank of Australia through an agreement transfer. We believe that insurance funds and industrial capital will continue to be important forces in the allocation of bank stocks in 2025, with more incremental funds expected.