Rich in government resources, the Bank of Xi'an is a regional government affairs agency cooperative bank in Shaanxi Province. It has established deep cooperative relationships with various government departments (Finance Bureau, People's Social Affairs Bureau) and public institutions in Shaanxi Province, and maintains good cooperative relationships with the local government in the fields of centralized treasury payments and social security fund management. The core Tier 1 capital adequacy ratio is far higher than the regulatory requirements. Bank of Xi'an's Core Tier 1 adequacy ratio at the end of 2018 was 11.87%, 4.73 percentage points higher than the regulatory red line. After the A-share listing in '19, the core Tier 1 adequacy ratio rose to 13.15%, exceeding regulatory requirements by 5.65 percentage points, ranking first among commercial banks in listed cities, and will not restrict its scale growth. The net interest spread increased faster in '18 and 1Q19. The net interest spread for IAS 39 in '18 was 2.23%, up 22 bps from '17; 1Q19 was about 2.49% (estimated value), which is only lower than Bank of Changsha and Bank of Guiyang among commercial banks in listed cities. Looking at the breakdown, the main thing is that the increase in yield on interest-bearing assets was higher than the increase in the cost ratio of interest-bearing debt. Its yield on 18-year interest-bearing assets was 4.49%, up 37 bps from '17; it rose to 4.75% in 1Q19. The rapid increase was mainly due to a sharp increase in the share of its loans in interest-bearing assets and a trend towards retail loans. Retail transformation progressed rapidly and there was plenty of room. Public loans at the end of '18 accounted for 68.71% of total loans, down 12.66 percentage points from the end of '16. At the end of '18, personal loans accounted for 26.33% of total loans, up 15.26 percentage points from '16; the main investments were in housing mortgages (10.19% of total loans at the end of '18) and consumer loans (11.84% of total loans at the end of '18, up 6.38 percentage points from the end of '17). The retail customer base is solid and sticky. As of 1H18, there were about 8.08 million individual retail customers, including 8,567 customers with financial assets of 1 million yuan or more. Furthermore, the Bank of Xi'an has positioned the business development target for small and micro enterprises as “the preferred partner bank for the growth of local small and micro enterprises”. As of 1H18, the Bank of Xi'an had 3110 small and micro loan customers. Investment advice: Interest spreads are rising rapidly, and retail transformation is advancing rapidly. Bank of Xi'an's 1Q19 ROE is 13.48%, which is lower than the average of commercial banks in listed cities, mainly due to low leverage ratios. We believe that with the completion of fiscal and taxation system reforms, its deposits are expected to return to normal growth rate, and active debt still has room to increase, and its ROE is expected to rise; the increase in net interest spreads is one of the main reasons for its recent profit growth, and the retail transformation attitude is firm and progressing rapidly, which may provide support for maintaining its net interest spread advantage. Bank of Xi'an was listed on March 1, 19. The current PB is 1.57x (as of July 16), so its valuation is higher than that of A-share listed commercial banks. We use the dividend discount method to value the Bank of Xi'an. The prediction model is divided into three stages: explicit growth period, semi-explicit growth period, and sustainable growth rate. Assume that the risk-free interest rate is 3.22% of the 10-year treasury bond yield, and the market risk premium is 7.12% (average yield of the 10-year Shanghai and Shenzhen Index). We calculated that the intrinsic value of the Bank of Xi'an is 6.22 to 8.5 yuan per share, giving it an “increase in holdings” rating. Risk warning: Asset quality has deteriorated significantly; deposit growth falls short of expectations.