Items:
The Bank of Shanghai released its report for the first quarter of 2022, with operating income of 14.23 billion yuan in the first quarter of 2022, an increase of 2.9 percent over the same period last year, and a net profit of 5.85 billion yuan, an increase of 5.4 percent over the same period last year, and an annualized ROE of 12.44 percent, an increase of 0.64pct over the beginning of the year. At the end of the first quarter, the total assets were 2.76 trillion yuan, an increase of 3.95% over the beginning of the year.
Peace viewpoint:
Earnings growth is slowing and wealth management is a drag. The Bank of Shanghai achieved a 5.4% year-on-year increase in net profit in the first quarter (vs5.5%,2021). The growth rate remained stable and effectively controlled the impact of the external environment.
On the revenue side, revenue grew 2.9 per cent year-on-year (vs+10.8%,2021), and the decline was mainly dragged down by mid-income. Specifically: 1) net interest income in the first quarter increased by 9.1% (vs+11.1%,2021) compared with the same period last year, and the growth remained solid. 2) net income from fees and commissions rose 3.5 per cent in the first quarter compared with the same period last year (vs+61.3%,2021), which is expected to be mainly due to a decline in the growth rate of wealth management income, which rose 7.18 per cent in the first quarter compared with the same period last year (vs+32.12%,2021). In addition, the company's retail AUM increased by 2.15% compared with the beginning of the year, and the AUM of pension customers increased by 2.58% over the beginning of the year, still maintaining a steady growth rate, driving financial asset management fee income up 20.7% from the same period last year. With the resumption of offline business in Shanghai after the epidemic, taking into account the location advantages of the company and the regional competitiveness of pension finance, Shanghai Bank still has a lot of room for growth in the wealth management market in the future.
Interest spreads fell slightly from the previous month, and assets expanded steadily. The company's first-quarter spread of 1.71%, down 3BP from the beginning of the year, is expected to be mainly a drag on asset-side pricing. From the perspective of negative asset structure, the company maintained steady expansion and further optimized structure. At the end of the first quarter, total assets increased by 8.1% (vs7.8%,2021) compared with the same period last year, of which loans increased by 9.5% (vs11.4%,2021), accounting for 45.6% of total assets, down 0.5pct from the beginning of the year, and deposits increased by 9.4% (vs11.8%,2021), accounting for 58.7% of liabilities, down 0.6pct from the beginning of the year. Looking ahead, as there is still downward pressure on the asset side, the inflection point of spreads remains to be seen.
The quality of assets is stable and improving, and the ability to resist risks is further improved. The failure rate of the Bank of Shanghai at the end of the first quarter was 1.25%, unchanged from that at the beginning of the year. We estimate that the annualized bad generation rate of the company in the first quarter was 1.33%, which was lower than the same period last year. The marginal pressure of bad generation was released slowly, and the industry maintained a low level. In terms of forward-looking indicators, the company's attention rate at the end of the first quarter was 1.60%, down 5BP from the beginning of the year to the lowest level in 15 years. Overall, the company's asset quality performance remained robust. At the end of the first quarter, the company's provision coverage rate was 303.6%, the month-on-month increase in 2.47pct, the loan ratio of 3.79%, and the month-on-month increase in 3BP. Under the background that the company's asset quality performance remained stable, the risk resistance continued to strengthen, providing strong support for revenue growth after the recovery of the epidemic.
Investment advice: significant location advantages, optimistic about the steady progress of wealth management transformation. Shanghai Bank continues to cultivate key areas such as the Yangtze River Delta, Guangdong, Hong Kong, Macao, Beijing, Tianjin and Hebei, with obvious location advantages, and the good credit environment in the coverage area also provides a stable source of income for the company. On the other hand, the Bank of Shanghai strives to create a differentiated competitive advantage, focusing on the three main lines of consumer finance, wealth management and pension finance, and the number of pension customers has always been in the first place in Shanghai. It is expected that as the epidemic moderates, the economy repairs and consumer credit demand picks up, corporate profits are expected to continue to repair. Combined with the company's quarterly report, we maintain the company's profit forecast for 22-24, the corresponding EPS is 1.71max 1.92max 2.16 yuan, and the corresponding profit growth rate is 10.5% 12.1% plus 12.4%. At present, the Bank of Shanghai has a corresponding PB of 0.46x/0.42x/0.38x 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.