The company operates steadily in the first quarter of 2022, reflecting excellent asset and liability management ability and sound risk management ability. Although the revenue growth of the wealth management business has slowed down, it still shows strong resilience in the context of a high base, and revenue growth is expected to gradually recover in the following quarters, while the financial side will maintain high certainty and maintain a "buy" rating.

Matters: China Merchants Bank released the quarterly report for 2022, with an annual operating income of 91.99 billion yuan and a net profit of 36.022 billion yuan, which was + 8.54% and 12.52% respectively over the same period last year. The non-performing loan ratio increased by 0.03pct to 0.94% over the end of last year.

Performance profile: business is sound and resilient. China Merchants Bank 2022Q1 operating income year-on-year + 8.54% (2021Q1 year-on-year + 10.64%), home net profit + 12.52% (2021Q1 year-on-year + 15.18%). 1) solid support of net income: 2022Q1 net income is + 9.97% year-on-year (2021Q1 + 8.23%). Under the dual pressure of market pricing and demand, net income growth is solid. 2) non-interest income growth declines: 2022Q1 non-interest income is + 6.53% year-on-year (2021Q1 + 14.20%), and wealth management income and investment-related income are dragged down in the stock and bond market downturn. 3) cost control continues to improve: the cost-to-income ratio of 2022Q1 is 26.10%, down 0.44pct from the same period last year, maintaining the improvement trend of last year, and the substitution effect of scientific and technological innovation on traditional costs is gradually emerging. 4) the provision should be prudent: the annualized credit cost of 2022Q1 is 0.81%, year-on-year + 0.32pct, mainly for real estate risk customers to increase cautiously and improve risk offset ability.

Interest business: the allocation of negative assets is stable, and the spread is improved compared with the previous month. 1) in terms of scale, loans are stable and deposits are active:

At the end of 2022Q1, the company's total assets / total liabilities were 1.57% higher than those at the end of last year, and the growth of asset-side loans was relatively convergent, which was 3.38% higher than that at the end of last year (2020Q1/2021Q1 at the end of the quarter was 5.39% more than at the end of last year). Credit growth was weaker than that of previous years, mainly due to the pressure of the economic environment in the current quarter and the repeated impact of the epidemic in some areas. The growth of deposits on the debt side is positive, and the deposit at the end of 2022Q1 is + 5.25% higher than that at the end of last year, which is better than 2021Q1, which is speculated to contribute to the transfer of other wealth management allocation to deposits. 2) there is a small improvement in the month-on-month interest rate difference:

2022Q1 disclosed a net interest margin of 2.51 per cent (month-on-month + 3bps, year-on-year-1bp), which performed relatively well, thanks to an increase in loan pricing and an average 2022Q1 loan yield of + 4bps; on the other hand, the debt structure was optimized, and the average balance of 2022Q1 deposits accounted for + 2.42pcts in interest-bearing liabilities.

Non-interest business: fee income structure adjustment, investment business pressure. 1) the total wealth management income decreased, and the structure was resilient: 2022Q1 wealth management income was-11.11% compared with the same period last year, which was mainly affected by the decline of agency fund income (- 58.53%) and agency trust income (- 48.51%). Among them, agency funds were mainly affected by the downturn in the capital market, and the agency trust speculated that the reason continued to be the risk pressure of the policy and real estate industry. The growth of agency insurance income is eye-catching. Compared with the same period last year, + 61.62% of the total wealth management income accounted for more than 50% of the total wealth management income, reflecting China Merchants Bank's advantages of comprehensive wealth management. 2) Great Wealth Management continues to empower: in addition to wealth management, the income of fees related to Great Wealth is growing well, and the income of 2022Q1 asset management / custodian fees is 11.32% higher than that of the same period last year. 3) the performance of the investment business is lacklustre: 2022Q1's "investment income + fair value change profit and loss" is basically flat compared with the same period last year.

Asset quality: increase impairment provision to deal with real estate and retail risk exposure. 1) small fluctuations in asset quality:

The ratio of non-performing / concerned / overdue loans at the end of 2022Q1 increased by 0.03 pct / concern / overdue loans respectively compared with the end of last year; the annualized non-performing rate was 1.16%, an increase of 0.21pct over the same period last year, mainly due to the risk exposure of some real estate customers and the impact of local epidemics on retail loans. 2) risk identification should be strict and actively expose risks: under multiple pressures, the company further strictly determines the classification of assets, the ratio of non-performing loans to loans overdue for more than 90 days at the end of 2022Q1 is 1.71 (1.45 at the end of last year), and prudent classification criteria fully expose risks, so as to detect and solve them early and ensure long-term sound operation. 3) increase the impairment provision, and the risk response capacity is sufficient: 2022Q1 Company provides for credit impairment losses of 21.523 billion yuan, + 4.76% compared with the same period last year, and the balance of provision for loan losses at the end of the period is 243.237 billion yuan, an increase of 4.052 billion yuan over the end of last year; the provision coverage rate and loan reserve ratio decreased slightly to 483.14%, 4.49%, respectively, but it is still an excellent level in the industry, and the risk response capacity is sufficient.

Risk factors: macroeconomic growth fell faster than expected; asset quality deteriorated significantly.

Investment advice: the company operates steadily in the first quarter of 2022, reflecting excellent asset and liability management ability and sound risk management ability. Although the growth of wealth management business income has slowed down, it still shows strong resilience in the context of a high base. It is expected that revenue growth in the following quarters will gradually recover, and the financial side will still maintain high certainty, maintaining the company's 2022 EPS forecast of 5.29 yuan / 6.27 yuan. The current A-share price corresponds to 2022 1.30xPB, maintaining the company's target price of 64.00 yuan, corresponding to 2022 1.95xPB, maintaining the "buy" rating.