The Bank of Chongqing takes root in Chongqing, highlighting the creation of "local banks, banks of small and micro enterprises, and banks of citizens". The construction of the Chengdu-Chongqing Shuangcheng economic circle brings a solid foundation for development. Cover for the first time, giving a "hold" rating.
Company profile: a characteristic city firm rooted in Chongqing. (1) Historical evolution: the first mainland city commercial bank listed on the Hong Kong Stock Exchange. The Bank of Chongqing was jointly established by 37 city credit cooperatives and city credit unions in Chongqing. In 2013, the Bank of Chongqing was listed on the main board of the Hong Kong Stock Exchange and the main board of the Shanghai Stock Exchange. it is the third city commercial bank in China to be listed on the "Aban H" shares. (2) Management: the management team is stably rooted in Chongqing and has rich management experience.
The management team has rich management experience and long-term stability is rooted in Chongqing, which not only helps the company continue to develop the local business, but also ensures the company's long-term consistent strategic implementation and business layout. (3) Business location: rooted in Chongqing, business expansion radiates Sichuan, Shaanxi and Guizhou. The company's business layout takes Chongqing as the core, and more than 80% of the branches are located in Chongqing by the end of 2021. The credit volume in Chongqing accounts for nearly 80% of the total loan size, and the non-performing loan ratio in Chongqing is lower than the overall level of the company.
Net interest margin: the rate of return on assets remains dominant and the debt cost ratio still needs to be improved. (1) the rate of return on interest-bearing assets remains dominant: in 2021, the rate of return on interest-bearing assets of the Bank of Chongqing was 4.87%, ranking third among listed city commercial banks, and the structure of the company's interest-bearing assets remained basically stable. the better rate of return on interest-bearing assets mainly comes from relatively high loan pricing. The average rate of return on loans of Chongqing Bank in 2021 was 5.54%, ranking fourth among listed city commercial banks. (2) the interest-bearing debt cost rate still needs to be improved: in 2021, the interest-bearing debt cost rate of the Bank of Chongqing is 2.94%, which is lower than the average of listed city commercial banks (2.47%). The higher interest-bearing debt cost rate comes from the higher average deposit cost rate, mainly because the overall deposit current rate of Chongqing Bank is on the low side.
Asset quality: risk indicators still need to be repaired. (1) Book asset quality: at the end of 2021, the "non-performing plus concern" loan rate of the Bank of Chongqing was 4.42%, and the overdue loan rate was 2.67%. On the whole, the company's asset quality is under repair after 2017, and the "non-performing plus concern" loan rate and overdue loan rate in 2021 are slightly higher than those in 2020, which is speculated to be affected by macroeconomic pressure and epidemic situation. (2) risk offset capability: at the end of 2022Q1, the company's provision coverage rate was 270.32%, which remained stable in recent years. Although the "loan allocation ratio-defect rate-concern rate" rebounded sharply after 2017 and reached-0.86% at the end of 2021, the broad provision gap still needs to be repaired.
ROE: the average level of commercial firms in the listed city. By the end of 2021, the ROE of the Bank of Chongqing was 10.99%, which is basically the same as the average level of listed city commercial banks in recent years. According to DuPont analysis, among the listed city commercial banks, Chongqing Bank has obvious advantages in interest income and expense control, but interest expenditure, non-interest income and credit costs are a drag on ROE.
Risk factors: macroeconomic growth is falling faster than expected, asset quality is deteriorating significantly; net interest margin is falling faster than expected; regional economic development is not as expected; regional inter-industry competition is intensified; and uncertain risks brought by local epidemics.
Investment suggestion: the Bank of Chongqing takes root in Chongqing, highlighting the creation of "local banks, banks of small and micro enterprises, and banks of citizens". The construction of the Chengdu-Chongqing Shuangcheng economic circle brings a solid foundation for development. We predict that the company's EPS in 2022 / 23 will be 1.27 yuan / 1.38 yuan, and the current A-share price corresponds to 2022 0.60xPB. According to the three-stage dividend discount model (DDM), we give the company a valuation of 0.63xPB in 2022, corresponding to the A-share target price of 8.3 yuan, and give the company H-share valuation 0.28xPB in 2022, corresponding to the target price of HK $4.40, taking into account the premium level of Amure H listed banks. Cover for the first time, giving the company a "hold" rating.