Summary of quarterly report: 2022Q1 of Pudong Development Bank made a net profit of 19.388 billion yuan, an increase of 3.7% over the same period last year. Of this total, net interest income increased by 2.5% over the same period last year, net income from handling fees increased by 2.5% over the same period last year, other non-interest decreased by 7.1%, and operating income increased by 1%. Total assets increased by 3.5% over the beginning of the year, total loans increased by 1.5%, and total deposits increased by 2.9%. At the end of the year, the non-performance rate was 1.58%, the provision coverage rate was 146.95%, the loan ratio was 2.32%, and the core tier one capital adequacy ratio was 9.54%.

The performance of Pudong Development Bank resumed growth in the first quarter of 2022, and the stock risk continued to be cleared. The company's performance increased by 3.7% year-on-year, a significant improvement compared with last year. The contribution to performance growth mainly comes from scale, provisions and taxes, while loan growth may be slowed down by the epidemic and real estate sales. The stock problem continues to be cleared, and after a large write-off in the second half of last year, the write-off high was slightly slowed down this year, and the provision coverage rate remained stable. The company is valued at PB0.39X in 2022, with a dividend yield of 5.13%. As the impact of the epidemic weakens and the stock risk is cleared, the investment value may gradually appear.

Support the main points of rating

The stock continues to clear, and the provision remains stable.

Pudong Development Bank has made great efforts to deal with the stock problem in the past few years, and its efforts were further strengthened in the second half of last year. The total write-off of the company in 2017-2021 is equivalent to 10% of the total loans in 2017, and the non-performing turnover is faster, and write-off / non-performing 106% in 2021. The write-off of 81.1 billion yuan for the whole of last year and 44.18 billion yuan in the second half of last year was significantly accelerated compared with the same period last year. It is estimated that the write-off in the first quarter of this year is 10.2 billion, which is still at a high level compared with 11.79 billion in the same period last year (estimated). Last year, the recovery of non-performing loans may have improved, with the recovery rate of non-performing loans of 10% in 2021, 3 percentage points higher than in 2020. The default rate was 1.58%, down 3bp from the previous year, while focusing on loans accounted for 2.17%, unchanged from the previous year. The provision coverage rate was 146.95%, up 3 percentage points from the end of last year, and the loan-to-loan ratio was 2.32%. The asset impairment loss in the first quarter was 3.5% lower than the same period last year.

Valuation

The company forecasts 2022 PB 2023 EPS1.83/1.89 yuan (the original forecast EPS 2.30 / 2.46 yuan), the current stock price corresponds to 2022 Compact 2023 PB 0.39x/0.35x, maintaining the overweight rating.

Main risks faced by rating

The economic downturn led to the deterioration of asset quality more than expected; supervision and control exceeded expectations.