Revenue growth is accelerating. The year-on-year growth rate of 1-3Q21 net profit is 4.58%, which is 0.11pct higher than that of 1H21; the growth rate of operating income is 13.16%, which is 1.91pct higher than that of 1H21; and the profit before provision is 11.00% higher than that of 1H21, which is higher than 2.49pct. From a split point of view, the impact of spreads weakens at the margin, rather than increasing the contribution of interest rates.
The defect rate decreased, and the provision coverage rate increased significantly compared with the middle of the year. The defect rate at the end of 3Q was 1.33%, with a month-on-month decrease of 2BP.
Prior to this, the defect rate at the end of 2Q rose to 1.35% by 8BP, while the company stepped up its write-off efforts, writing off 2.9 billion yuan in the first half of the year, which has exceeded the whole of 2020. We believe that the company increased the bad recognition and write-off in the second quarter, so the bad generation rate of the single quarter is the highest in the second quarter, while the third quarter is lower than the first quarter, so the overall risk release is somewhat slow. At the same time, the cost of credit is still rising in the third quarter, and we estimate that the cost of credit in the third quarter is 1.63%, up from 1.48% in the second quarter. This increases the 3Q end-of-provision coverage by 23.85pct to 271.67% compared with the previous month.
The cost of debt has improved steadily. We estimate that the net interest margin in the first three quarters is 1.99%, which is larger than the 3BP in the first half of the year, and there are signs of marginal improvement. The main reason is that the rate of return on assets expanded 4BP compared with the same period last year, offsetting the impact of higher 1BP in debt cost ratio. At the end of 3Q, the proportion of low-yielding interbank assets decreased by 1.4pct, and the asset structure was optimized.
The marginal slowdown of bad generation. In the first three quarters, non-interest income grew by 50.2% compared with the same period last year, mainly due to the 128% growth rate of investment business income. The proportion of investment business income in the first three quarters increased by 8.8pct to 17.5% compared with the same period last year. Compared with the same period last year, not only the investment income increased, the value of US dollar assets changed from negative to positive year on year, and the valuation of transactional financial assets was profitable.
Investment advice. The margin of risk of the Bank of Chongqing eased slightly in the third quarter, and revenue growth continued to improve. We predict that the EPS from 2021 to 2023 will be 1.28,1.42,1.62 yuan, and the growth rate of net profit will be 6.43%, 10.65% and 13.37%. According to the DDM model (see Table 2), we get the reasonable value of 12.99RMB. According to the PB-ROE model, we value the 2021E PB of the company at 0.90x (0.84 times of the comparable company), and the corresponding reasonable value is 11.63RMB. Therefore, the reasonable value range is 11.63-12.99 yuan (corresponding to the 2021 PE is 9.10-10.16 times, the peer company corresponding to PE is 6.69 times), maintaining the "better than the big market" rating.
Risk hints: the solvency of enterprises has declined, asset quality has deteriorated significantly, and major changes have taken place in financial regulatory policies.