Profit growth accelerated markedly. Bank of Xiamen's net profit for Q3 increased 28.5% in a single quarter, 22H1 net profit increased 15.1% year-on-year, and 22Q3 showed a significant improvement over 22H1, which led to a profit increase of nearly 20% year-on-year in the first three quarters of '22.
Asset quality indicators are all improving. In 22Q3, the non-performing rate of the Bank of Xiamen decreased by 4 bps to 0.86% month-on-month, and the attention rate was 0.68%, a significant decrease of 19 bps from 22Q2. The provision coverage rate was 385.02%, an increase of 21 pct over the previous month.
Convertible bonds are yet to be issued, and the Xiamen Municipal Finance Bureau has changed from direct shareholding to indirect shareholding. The Bank of Xiamen plans to issue no more than 5 billion yuan of convertible bonds to supplement core Tier 1 capital, which has yet to be approved by the Securities Regulatory Commission. Due to the transfer of state-owned assets, the largest shareholder of Bank of Xiamen changed from the Xiamen Municipal Finance Bureau to Xiamen Jinyuan Investment Group in 22Q3. Xiamen Jinyuan Investment Group is 100% controlled by the Finance Bureau, which changed its direct shareholding to indirect ownership.
Investment advice. Bank of Xiamen's 22Q3 profit growth rate and marginal improvement in asset quality were significant. We forecast EPS of 0.98, 1.13, and 1.31 yuan in 2022-2024, and net profit growth rates of 19.05%, 15.98%, and 15.14% for Guimu. The original 2022-2024 EPS was 0.95, 1.06, 1.19 yuan. We obtained a reasonable value of 7.56 yuan based on the DDM model (see Table 2); according to the comparable valuation method, the 2022 PB valuation for the company was 0.75 times (0.62 times for the comparable company), and the corresponding reasonable value was 6.49 yuan. Considering that the DDM model better reflects the long-term value of the company, our target price is 7.56 yuan (corresponding to 7.73 times PE in 2022, 4.68 times PE for interbank companies), and the original target price was 6.9 yuan. We maintain the “superior market” rating.
Risk warning: The solvency of enterprises has declined, and asset quality has deteriorated drastically; major changes have occurred in financial supervision policies.