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The Bank of Shanghai released its 2021 annual report, with an annual operating income of 56.23 billion yuan in 2021, an increase of 10.8 percent over the same period last year, and a net profit of 22.04 billion yuan, an increase of 5.5 percent over the same period last year, a decrease of 0.29pct over last year. At the end of the year, the total assets were 2.65 trillion yuan, an increase of 7.8 percent over the end of last year. The profit distribution plan of the company in 2021 is: it is proposed to distribute a cash dividend of 4 yuan (including tax) for every 10 shares, with a dividend rate of 27.06%.

Peace viewpoint:

Revenue has grown steadily, and the transformation of wealth management has achieved remarkable results. The company achieved a year-on-year increase in net profit of 5.5% (vs+10.6%,21Q1-3) over the same period last year, maintaining steady growth. We judge that the decline in growth compared with the previous three quarters is mainly affected by the high base of 20Q4. Revenue growth is steadily rising, achieving revenue growth of 10.8% year-on-year (vs+10.4%,21Q1-3). Sub-structure: 1) 21-year net interest income increased 11.1% year-on-year (vs+6.9%,21Q1-3), which is further higher than that of the previous three quarters. We judge that the acceleration of net interest income growth is mainly driven by scale, with annual interest-bearing assets growing at an average daily rate of 15.8% compared with the same period last year. 2) the 21-year net income of fees and commissions increased by 61.3% (vs+38.3%,21Q1-3) compared with the same period last year, with particularly strong growth, increasing its share of revenue by 5.04pct to 16.09%. We believe that this is mainly due to the outstanding results of the company's wealth management transformation. Agency income increased by 126.1% compared with the same period last year, the proportion of middle income increased to 65.6%, and the middle income structure continued to be optimized. We believe that agency fee income is mainly driven by pension finance and wealth management business. At the end of 21, the company's retail AUM reached 901.5 billion yuan (YoY+20.3%), pension customer AUM reached 416.6 billion yuan (YoY+20.0%), and the company's influence in the wealth management market increased significantly.

Downward loan pricing is a drag on interest spreads and deposit costs continue to improve. The company's net interest margin at the end of 21 was 1.74% (vs1.73%,21Q3), which remained basically stable, with a year-on-year decline in 8BP, which was mainly affected by asset side, especially loan pricing. On the asset side, the company's 21-year return on interest-bearing assets fell from 19BP to 4.01% compared with the same period last year, of which the loan yield was 4.72% (- 34BPMagneYoY). We judged that the company was mainly affected by the real economy and the decline in new lending rates, and superimposed the impact on the repricing effect of stock floating rate loans after the reduction of LPR, which was consistent with the overall trend of the industry. Among them: the average interest rate on public / retail loans fell 25BP/65BP to 4.41% 5.79% compared with the same period last year. The cost on the debt side continues to improve, and the 21-year interest-bearing debt cost ratio has fallen to 2.23% compared with the same period last year, and the improvement in deposit cost is the key reason. In the case of rising interbank liabilities and bond payable costs, deposit costs plummeted to 2.07 per cent year-on-year, due to the strengthening of the company's structured deposit pricing management, and the company's public time deposit cost rate fell sharply to 2.69 per cent (- 21BPMagy).

Negative assets expanded steadily, with total assets growing 7.8 per cent year-on-year at the end of 21 (vs+8.5%,21Q3), of which loans maintained rapid growth, with loan growth of 11.4 per cent year-on-year, slowing slightly from the previous month but still maintaining a high level of growth. From the point of view of the loan structure, relying on the company's active service to key economic regions such as the Yangtze River Delta, public business has injected the main driving force for loan growth, accounting for 60.0% of loans, an increase of 10.4% over the same period last year. Retail loans increased by 11.7% compared with the same period last year, and the investment was skewed towards high-yielding assets, of which the size of personal operating loans increased by 64.3% compared with the same period last year. The debt base was consolidated, and the company's 21-year deposits increased by 11.8% compared with the same period last year, and the proportion of debt increased by 2.2pct to 59.3% compared with the same period last year. The deposit structure continued to be optimized, with demand deposits accounting for 38.0% of total deposits, of which individual demand deposits increased by 14.5% over the same period last year, showing a good trend of development.

The intensity of bad disposal has been increased, and the forward-looking indicators have continued to improve. At the end of 21, the bad rate of the company was 1.25%, up 3BP from the same period last year. From a structural point of view, the bad rate of public loans increased by 24BP to 1.67% compared with the same period last year, mainly due to the risk of individual real estate enterprises. The bad rate of retail loans decreased by 35BP to 0.77% compared with the same period last year. The bad rate of credit card loans decreased by 9BP to 1.65% compared with the same period last year. We estimate that the 21-year bad generation rate of the company is 0.83%, which is lower than that of the same period last year, and the marginal pressure of bad generation is greatly released, which is maintained at a comparable low level in the industry. According to forward-looking indicators, the company's attention rate at the end of 21 was 1.65%, a month-on-month decline of 5BP, and a year-on-year decline of 26BP, the lowest level since 2015. At the end of 21, the provision coverage rate is 301%, compared with Q3 downlink 31pct, the provision coverage level is still sufficient, the loan ratio is 3.76%, and Q3 downlink 18BP has strong risk offset ability.

Investment advice: significant location advantages, optimistic about the steady progress of wealth management transformation. Shanghai Bank ploughs the Yangtze River Delta, Guangdong-Hong Kong-Macau Greater Bay Area, Beijing-Tianjin-Hebei and other key areas dominated by Shanghai, with significant location advantages. the good credit environment in these areas has laid a solid foundation for the development of the company. On the other hand, the company has accelerated the retail transformation, focusing on the three main lines of consumer finance, wealth management and pension finance, and continuously accelerating the layout of retail business, doubling the number of core customers and customer AUM in the past three years. It is expected that with the easing of the epidemic, economic repair, consumer credit demand pick up, the company's profits are expected to continue to repair. The scale of the company's non-capital preservation financial products ranks first in City Commercial Bank, and in August last year, the company was approved to set up a financial management subsidiary, which is expected to further consolidate the advantages of financial management business. Taking into account the marginal rise of economic downward pressure and the disturbance of the epidemic situation, we slightly reduce the company's profit forecasts for 22 and 23 years, and add 24-year profit forecasts. It is estimated that the company's 2022 and 2023 EPS in 2024 will be 1.71 and 1.92, respectively. (the original forecast for 22 and 23 is 1.77 and 1.94 respectively). The corresponding profit growth rate is 10.5%, 12.1%, 12.4% (9.2%, 9.5%, respectively, respectively). At present, the Bank of Shanghai has a corresponding PB of 0.47x/0.43x/0.39x in 22-23-24, and the company's valuation level is still at the bottom of history, with limited downside space, sufficient safety margin, and maintaining a "recommended" rating.

Risk tips: 1) the macroeconomic downturn has led to a higher-than-expected rise in asset quality pressure in the industry. 2) the decline in interest rates has led to a narrowing of industry spreads than expected. 3) the increase of cash flow pressure of real estate enterprises leads to the rise of credit risk.