Incident: On the evening of August 26, Zijin Bank disclosed 1H20 results: revenue of 2.47 billion yuan, YoY +2.53%; net profit of 729 million yuan, YoY +1.95%; as of the end of June 2020, asset size of 211.2 billion yuan, up 3.4% year on year; non-performing loan ratio of 1.68%, provision coverage rate of 245.05%. Comment: Revenue and net profit growth both declined by 2.53% in 1H20, down 7.79 percentage points from 1Q20 — mainly net interest income declined (YoY - 4.7%). In addition, the low 1Q19 non-interest income base (95 million) led to a high growth rate of 1Q20 non-interest income (YoY +262%) contributed greatly to revenue. The year-on-year growth rate of 2Q20 non-interest revenue has returned to normal (YoY +46%); profit growth rate before provision was 4.1%, down 13.1 percentage points from 1Q20; 1H20 Net profit growth was only 1.95%, down 8.76 percentage points from 1Q20, in line with industry trends. Through profit attribution analysis, interest spreads (-10.89 pct) and income tax (-7.21 pct) were mainly dragged down. Non-interest income (+7.18 pct), scale expansion (+6.23 pct), provisions (4.36 pct), and costs (+2.26 pct) all contributed positively. ROE declined. The annualized weighted average ROE was 10.44%, down 68BP from the previous year. The net interest spread declined, and the growth rate of deposits and loans increased, and the net interest spread declined. Zijin Bank's 1H20 net interest spread was 2.01%, down 5BP from 1Q20 and 11BP from the beginning of the year. Interest rates on 1H20 loans fell by 25BP to 5.13% from '19 to benefit the real economy; interest rates on deposits increased by 3BP to 1.88% from '19. Market interest rates have risen recently. As Zijin Bank accounts for a relatively high share of interbank debt, it is expected that interest spreads will remain under pressure in the future. The balance and liability structure has improved. The loan size of 1H20 was 115.8 billion yuan, up 16.2% year on year, up 6.4 percentage points from 1Q20, the share of interest-bearing assets increased by 2.24 percentage points to 54.76%, and the interest-bearing asset structure improved; 1H20 deposit size was 143 billion yuan, up 12% year on year, up 3.67 percentage points from 1Q20, accounting for 73.64% of interest-bearing debt. Asset quality has improved, and increased provisions focus on the significant decline in loan ratios. The 1H20 non-performing loan ratio was 1.68%, the same as 1Q20; focus on the loan ratio of 1.34%, down 41BP/26BP respectively from the beginning of the year/1Q20; the overdue loan ratio was 1.55%, down 2BP from the beginning of the year. 1H20 has written off 220 million yuan of non-performing loans, an increase of 73% over the previous year; the 1H20 non-performing net generation rate is 0.45%, down 34BP from the beginning of the year. The deviation of 1H20 non-performing loans rose 4.75 percentage points from the beginning of the year to 74.31%, and the margin of bad judgment was relaxed; the 1H20 restructuring loan ratio was 1.95%, down 14BP from the beginning of the year. Provisions have been strengthened. The 1H20 loan ratio was 4.12%, an increase of 13 BP from the beginning of the year; the provision coverage rate reached 245.05%, an increase of 4.55 percentage points from 1Q20, and the ability to offset risk was enhanced. Investment advice: Asset quality has improved. Maintaining the “increase in holdings” rating. Considering this year's response to regulatory calls for increased provisions, we adjusted Zijin Bank's net profit growth forecast for the year 20/21 from 8.9%/9.7% to 1.5%/11.4%. Relying on the geographical advantages of Nanjing, the capital of the province, Zijin Bank's 1H20 deposit and loan scale has grown rapidly, and asset quality has improved. Due to a certain premium for the IPO, the target valuation was maintained at 1.2 times the 20-year PB, corresponding to the target price of 4.85 yuan/share, maintaining the “increased holdings” rating. Risk warning: Credit quality has deteriorated significantly due to the impact of the pandemic; financial concessions and interest spreads have narrowed sharply.