1H21's performance is in line with our expectations.
The company announced 1H21 results: 1H21 revenue was 7.27 billion yuan, down 9.4% from the same period last year. 2Q21's single-quarter income was 3.73 billion yuan, down 3.8% from the same period last year, and up 5.5% from the previous year. The net profit of 1H21 was 2.92 billion yuan, an increase of 3.2% over the same period last year, while the net profit of 2Q21 in a single quarter was 1.35 billion yuan, an increase of 1.9% over the same period last year, down 14.1% from a month earlier. The company's performance is in line with our expectations.
Development trend
2Q21 revenue fell 3.8 per cent year-on-year, and net interest margin fell 22bp to 2.26 per cent in the first half of the year. 2Q21's net interest income in the single quarter was 3.24 billion yuan, down 5.1% from the same period last year, continuing the downward trend in the first quarter, mainly due to the narrowing of the net interest margin: 1) the company actively implemented the policy of fee reduction and interest concession, and interest rates fell after the repricing of some loans; 2) the proportion of demand deposits decreased and the cost of debt increased. In addition, due to the volatility of interest rates in the bond market, the sharp decline in investment income from the same period last year also depressed the company's income.
The scale expands slowly. At the end of 2Q21, total assets, loans and deposits increased by 4.4%, 15.0% and 8.7% respectively over the same period last year, while interbank liabilities increased by 27.3%. The proportion of demand deposits fell 2.9ppt to 36.7% compared with the same period last year.
Credit risk still exists. The final non-performing rate of 2Q21 decreased by 1bp to 1.51% on a quarter-on-quarter basis; the proportion of concern loans rose to 2.87% on a quarter-on-quarter basis; the proportion of overdue loans rose to 5.92% on a quarter-on-quarter basis; the proportion of non-performing / overdue loans rose to 5.92% on a quarter-on-quarter basis; the non-performing / overdue criteria may be more relaxed; the provision coverage rate rose slightly to 282.7% on a quarter-on-quarter basis. Looking ahead, we expect that the evolution of the asset quality of Guiyang Bank may still be a key factor affecting its performance and valuation, and we continue to have bank credit risk.
Profit forecast and valuation
Keep profit forecasts for 2021 and 2022 unchanged. The current share price corresponds to 0.6 / 0.5 times price-to-book ratio in 2021 / 2022. Considering that there are still uncertainties in the company's asset quality, we maintain our neutral rating but lower our target price by 11.6% to HK $8.12, corresponding to 0.6 times 2021 price-to-book ratio and 0.5 times 2022 price-to-book ratio, which is 20.0% upside from the current share price.
Risk
The asset-side risk is not as clear as expected, and the cost of debt continues to rise.