Abstract: 1. Rooted in the first city in the northwest, the economic take-off helps the development of Xi'an with a high GDP growth rate, and the tertiary sector is well developed, providing broad development space and momentum for Bank of Xi'an's strategic transformation and business innovation. At the same time, relying on the government background, Bank of Xi'an has become a regional government agency cooperative bank in Shaanxi Province, bringing a large number of business opportunities and accumulated capital. As of the end of the first half of 2018, the Bank of Xi'an ranked 3rd and 5th in terms of market share in Xi'an in terms of deposit and loan size, respectively. 2. Both net interest spreads and growth rates rank among the top of the industry. Bank of Xi'an's net interest spread reached 2.23% in 2018, ranking 3rd among commercial banks in the city, with an increase of 22 bps, second only to the Bank of Shanghai. There are two reasons why Bank of Xi'an has the highest net interest spread: First, Bank of Xi'an's interest-bearing debt cost ratio in 2018 was 2.49%, which is only higher than that of banks in Ningbo, Chengdu, and Changsha in the industry. The higher share of deposits and the lower deposit cost ratio are the main reasons for Bank of Xi'an's debt-side cost advantage. Second, the ratio of the Bank of Xi'an's average daily interest-bearing debt to daily interest-bearing assets is only 90.40%, which is the lowest value for urban commercial banks. It shows the best interest-bearing asset investment efficiency and turnover efficiency of its peers, increasing net interest spreads. 3. Asset quality is at the top of the industry. Future adverse pressure is lighter, and the Bank of Xi'an's non-performing ratio has fluctuated less since 2015. Although the overall trend is fluctuating and rising, the increase is slight. The trend declined slightly for two consecutive years after reaching a high of 1.27% in 2016; the 19Q1 non-performing rate was 1.23%, which was only higher than Bank of Nanjing, Bank of Ningbo, and Bank of Shanghai among peers. Judging from the strictness of the assessment of non-performing loans, the Bank of Xi'an has increasingly stringent standards for determining non-performing loans. Since 2015, the share of overdue loans, the proportion of loans overdue for 90 days or more, and scissor differences have all declined significantly. 4. The core level level far exceeds that of its peers, supporting future development space. The Bank of Xi'an raised 2.08 billion yuan in capital through its 2019 IPO, consolidating advantages for the Bank of Xi'an itself in sufficient core tier 1 capital adequacy. At the end of the first quarter of 2019, the core Tier 1 capital adequacy, and capital adequacy were 13.15%, 13.16%, and 15.48% respectively. Among them, Core Tier 1 capital adequacy and Tier 1 capital adequacy ranked first in the industry, second only to Bank of Qingdao in capital adequacy. 5. The Bank of Xi'an had a relatively low share of retail loans and a huge year-on-year margin. In the past, as a government business agent, the Bank of Xi'an mainly dealt with the public, and its retail base was relatively weak. The five-year “strategic plan” began to be promoted in '17, focusing on promoting retail business transformation, based on real estate mortgage loans and consumer loans as the driving force for growth. At the end of '18, the balance of personal loans was 34.612 billion yuan, an increase of 77.75%. 6. Bad concentration is concentrated in two industries. Defects in most industries are extremely low. In recent years, the Bank of Xi'an has continuously adjusted its loan structure, favoring public loans in favor of industries such as water conservancy, environment and public facilities management, leasing and business services, which have good development prospects and high asset quality, while reducing the share of loans in the wholesale, retail, and manufacturing industries where asset quality problems are high, and the overall public loan structure continues to be optimized. The Bank of Xi'an is polarized by sector's non-performing rate, and the non-performing ratio of loans in the manufacturing, wholesale, and retail sectors is far higher than that of other industries. As an industry with a high non-performing ratio in the manufacturing industry traditionally, the asset quality of the manufacturing industry has been poor since the 2016 non-performing outbreak, and the trend has not abated; the proportion of non-performing balances in the wholesale and retail sector in the total public-private non-performing balance was about 68% in 2015, and the bad balance declined slowly thereafter, but overall, the asset quality of the industry is still not optimistic. The non-performing rate in other industries did not exceed 1%, which is far below the average of its peers. It is expected that in the future, with the continuous increase in loan scale and the gradual disposal of problematic loans by the Bank of Xi'an, the non-performing rate of the manufacturing industry will steadily decline. Coupled with the high quality of loan assets in most industries, continuous optimization of loan structures, and economic improvements in the Xi'an and Yulin regions, the overall quality of public loans will steadily improve in the future. 7. Investment advice We believe that the Bank of Xi'an has a strong shareholder background. The government background has brought a large number of business opportunities and capital deposits, and has also relied on the foreign investment background to introduce an advanced risk management structure, personnel system, and credit customer rating system. As a bank with a long-term focus on the public sector and steady development, the company's loans are of good quality and low debt-side costs, providing strong support for steady performance growth. At the same time, through in-depth cooperation with Alibaba, fintech capabilities have been significantly enhanced, and Alipay's “borrow” products have been used to rapidly transform the retail side. Consumer loans with high yield and low non-performing rate have rapidly increased the share of retail loans and retail yields, and significantly reduced capital consumption. In the future, with the sharp increase in the registered population of Xi'an and the booming economy, bringing huge room for growth on both sides of the balance and liability side, the Bank of Xi'an will become even more obvious in terms of its low level of weakness, high growth, and sufficient capital. We expect the company's revenue growth rate in 19/20 to be 24.25%/20.63%, respectively, and net profit growth of 13.87%/14.76% respectively; BVPS is 5.34 yuan/5.77 yuan; corresponding PE is 11.11/9.70, and PB is 1.26/1.16. We gave it an “increased holdings” rating, with a target price of 8.6 yuan for 6 months.