The policy dividend of Xi'an Bank is outstanding, and the strengthening of retail + deep ploughing regional industry finance is expected to inject new momentum into the company's sustainable development. Maintain the "overweight" rating.

Matters: Xi'an Bank released its mid-2021 report that operating income and homed net profit in the first half of the year increased by 5.7% and 5.2% respectively compared with the same period last year; the non-performing rate decreased by 0.01pct to 1.19% on a quarter-on-quarter basis.

The profit growth rate became positive in the second quarter, and the support of the provision factor was obvious. The company's first-half net profit is + 5.2% year-on-year (year-on-year-8.0 in the first quarter). Split: 1) the revenue end is generally stable, with a growth rate of + 5.7% in the first half of the year (+ 7.7% in the first quarter), and balanced growth in interest income and non-interest income. 2) on the expenditure side, the cost-to-income ratio in the first half of the year was unchanged at 23.7% compared with the same period last year, reflecting that cost control still made a good contribution in the context of revenue repair. 3) on the provision side, the provision for the second quarter gradually returned to normal. The provision for impairment in the first half of the year was + 10.0% year on year (+ 39.8% for the first quarter), and the provision coverage rate at the end of half a year was 262.8%, slightly lower than at the beginning of the year (6.5pct).

The growth rate of net interest income is generally stable. In the first half of the year, the company's net interest income was 6.3% year-on-year (+ 8.6% in the first quarter). In terms of volume and price split, the rate of table expansion remained stable, with total assets increasing by 1.4% and 3.4% respectively in the first two quarters. Since the second quarter, the company's assets have mainly been invested in relatively high-yielding credit assets and investment assets. 2) there is still a certain drag on interest spread. in the first half of the year, the company disclosed that the caliber net interest margin was 2.00%, which was lower than that of the same period last year and the whole of last year, respectively. According to the average method at the beginning and end of the period, after the repricing factor of the asset end fell in the first quarter, the rate of return on assets gradually stabilized in the second quarter, and the interest payment rate on the liability side still rose slightly, so the effect of debt cost management should be paid attention to.

The growth center of middle income was stable, and other non-interest restorative growth in the second quarter. 1) in the first half of the year, the net income of fees and commissions increased by 20 million (+ 8.3%) compared with the same period last year, mainly due to the rapid growth of trade financing and guarantee fees (an increase of 53 million over the same period last year). Trusteeship, investment banking and other public business income still fell slightly compared with the same period last year. 2) other non-interest income is-5.4% year-on-year (year-on-year-9.6% in the first quarter), and investment income in the second quarter is better than that in the same period last year. In addition to the low base effect brought about by the rising market interest rate center in the second quarter of last year, the company may also contribute to strengthening the management of investment asset structure this year.

Under the exposure and confirmation of the problem assets, the provision is still in the consolidation stage. The company's failure rate at the end of half a year was 1.45%, higher than that of the first quarter and the beginning of the year-0.01pct/+0.01pct. According to the broad asset quality index, the exposure and identification of problem assets are still in the process of advancing. In the first half of the year, the loan rate and overdue loan rate rose slightly 0.59pct/0.75pct to 3.37% and 2.27% respectively. In terms of provisions, the provision for the second quarter gradually returned to normal. The provision for impairment in the first half of the year was + 10.0% compared with the same period last year (+ 39.8% in the first quarter), and the provision coverage rate at the end of half a year was 262.78%, slightly lower than at the beginning of the year (6.5pct).

Risk factors: the macroeconomic decline has exceeded expectations, leading to a significant deterioration in asset quality.

Investment suggestion: Xi'an Bank's outstanding policy dividend, strengthening retail + deep ploughing regional industry finance, is expected to inject new momentum into the company's sustainable development. Considering that the provision of the company is better than expected in the second quarter, the company slightly adjusts the company's 2021 EPS forecast of 0.66 yuan (the original forecast is 0.65 yuan), while increasing the 2022 EPS forecast of 0.71 yuan. The current share price corresponds to 0.70X PB in 2021. Give the company a target price of 5.00 yuan in the coming year, corresponding to 0.80xPB in 2021, and maintain the company's "overweight" rating.