After Q1 hit bottom, Q2 fundamentals are being repaired. 21H1 revenue, PPOP and return net profit change-9.4%,-12.6% and 3.2%, respectively, compared with 21Q1. 5.3pcts, 6.0pcts,-1.2pcts. Although Q2 grew 1.9 per cent in a single quarter, down slightly from Q1 (4.4 per cent year-on-year), the year-on-year decline in revenue and PPOP narrowed. Compared with Q1, the structure of performance growth mainly supported by provisions has not changed; marginal core profitability has improved, mainly due to the positive contribution of other non-interest income, slowing scale growth and deepening the negative contribution of interest spread and fee net income.
The net interest spreads of 20A, 21Q1 and 21H1 are 2.52%, 2.23% and 2.26% respectively. According to our calculation, the upward range of the rate of return on interest-bearing assets (+ 9bps) is greater than the cost ratio of interest-bearing liabilities (+ 7bps). 21H1 compared to 20A, both assets and liabilities are squeezed, the rate of return on interest-bearing assets decreases by 13bps, the cost ratio of interest-bearing liabilities increases by 16bps, and the return on loans on assets decreases slightly (- 5bps). Investment assets are affected by long-term receivables (- 59bps) and asset management plans and trust plans (- 19bps). The decline is larger (- 23bps). The costs of debt-side deposits (+ 15bps), interbank deposits (+ 37bps) and issuing bonds (+ 16bps) have all risen. Deposits are mainly affected by the change of social security fund collection policy, and the cost of public deposits has risen in an all-round way.
Asset side: good public demand, take the initiative to reduce non-standard assets. Interest-bearing assets and total loans increased by 0.7% and 6.8% respectively over the beginning of the year, and loans were slightly faster than last year (4.9%), mainly due to better growth in corporate loans and bill discount; investment assets (excluding long-term receivables) and interbank assets decreased by 3.7% and 6.5% respectively compared with the beginning of the year. Debt side: the growth of personal savings is good. Interest-bearing liabilities and deposits increased by 0.1% and 0.7% respectively over the beginning of the year, while personal deposits grew better, with an increase of 14.4% over the beginning of the year (vs. Corporate deposits-6.6%).
The asset quality is under pressure. At the end of half a year, the non-performing loan ratio is 1.51%, down 1bps from the previous month; the concern loan rate is 2.87%, up 3bps from the previous month; the overdue loan rate is 5.60%, which is 221bps higher than that of 20A; the overdue loan is more than 90 days overdue / non-performing 102.4%, mainly because individual customers are overdue for more than 90 days, and the company has made full provisions to maintain the asset quality grade as required by the debt committee. 21H1 estimates that the rate of bad new generation is 0.82%, which is lower than that of 20A and 21Q1 by 130bps and 60bps respectively. The risk offset capability has been improved, and the provision coverage rate is 283%, which is higher than that of 9pcts on a month-on-month basis.
Investment advice: low valuation, focus on improving fundamentals. It is estimated that the growth rate of the company's homing net profit in 21x22 is 5.3% and 9.8% respectively, respectively. The current A share price corresponds to 2.13 yuan per share in 21max, and the current A share price is 3.5x PE in 22nd year, 3.2XPowerPB is 0.5X/0.440X. Considering that the valuation of the company is at a historically low level, we value the company's 21-year PB at 0.6x, corresponding to a fair value of 8.10 yuan per share, and maintain a "buy" rating.
Risk hints: (1) more-than-expected decline in economic growth; (2) significant deterioration in asset quality.