Events:
On October 25, Xiamen Bank released a report for the third quarter of 2022, with operating income of 4.45 billion, an increase of 15.4% over the same period last year, and a net profit of 1.8 billion, an increase of 19% over the same period last year. The weighted average return on equity (ROAE) was 11.09%, an increase in 0.45pct compared with the same period last year.
Comments:
Revenue growth is steady and profits are accelerating. The company's revenue, pre-provision profit and homing net profit in the first three quarters increased by 15.4%, 15.6% and 19% respectively compared with the previous quarter, which were-2.8,0.7 and 3.9pct respectively compared with the previous quarter. Among them, net interest income and non-interest income grew by 7.4% and 55.3% respectively over the same period last year, down 0.3% and 35.5pct respectively from the previous quarter. Split the profit growth structure over the same period last year, with scale expansion and non-interest as the main contribution items, driving the performance growth rate by 27.5 and 23.4 pct respectively; from the perspective of marginal changes, scale expansion, non-interest contribution weakening slightly, net interest margin, expense negative drag narrowing, increased provision led to negative drag increase. On the whole, although the company's revenue growth rate in the first three quarters has declined compared with the first half of the year, it still remains at a high level of more than 15%, and the profit growth rate is high and stable. Under the current situation, the company is relatively sound.
The speed of table expansion remains high, and the popularity of inclusive small and micro loans is high. At the end of 22Q3, the company's total assets increased by 13.7% compared with the same period last year, and the growth rate decreased by 0.7% from the previous quarter. 3Q put in 12 billion of new assets in a single quarter, and the intensity of expansion was basically the same as the same period last year. Among them, the growth rate of loans was 12.5% year-on-year, down 2pct from the end of 2Q; 8.7% from the beginning of the year, and 2.2pct higher than that at the end of 2Q. In terms of credit structure, 3Q added 5.5 billion new loans in a single quarter, accounting for 22%, 74% and 4% of new loans to public, retail and bills, respectively, and retail credit expansion dominated. With reference to the pace and structure of the company's past credit delivery, credit was mainly granted to the public sector in the first half of the year, while personal operating loans and mortgage loans will be increased in the second half of the year. However, the foundation for economic recovery is still not solid, and residents are not willing to increase leverage. We expect that whether it is the industry or the company itself, mortgage loans are still weak, but personal operating loans are expected to maintain a relatively high degree of prosperity. Since the beginning of this year, we have seen a relatively rapid growth rate of inclusive small and micro loans in Xiamen Bank. by the end of September, the balance of inclusive small and micro loans exceeded 54 billion, an increase of about 21.5% over the beginning of the year, which is higher than the 12.8pct growth rate of all loans.
Among them, 3Q increased by more than 5.6 billion in a single quarter, which is the main force driving 3Q's credit expansion.
The absorption of market liabilities has increased, and margin deposits have increased significantly. By the end of 3Q, the company's total liabilities, deposits and market liabilities increased by 14.2%, 14.4% and 13.9% respectively over the same period last year, with changes of-0.7,7.5 and 9.9pct respectively over the previous quarter. 3Q increased market liabilities by 14.6 billion in the single quarter, an increase of 11.5 billion over the same period last year, while deposits decreased by 3.3 billion, up 11.9 billion from the same period last year. In the context of fixed deposits and further downward movement of the interest rate center of 3Q funds, the company is expected to strengthen the internal management of high-interest deposits and appropriately increase the absorption of market liabilities. Looking at the deposit structure, retail deposits, public deposits and margin deposits grew by 27.6%, 1.1% and 55.3% respectively over the same period last year, of which the growth rate of margin deposits increased by 35.3pct compared with the end of 2Q, and the company's off-balance sheet risk assets are expected to expand faster.
The 3Q spread is expected to be generally stable, and the dividend is gradually released when the interest rate of deposit listing is lowered. The results show that the 3Q spread of the company is 1.41%, which is the same as that of 2Q, and the trend of interest spread has remained stable so far this year. Among them, the rate of return on interest-bearing assets is 3.74%, which is lower than that of 2Q by 3bp, and the cost rate of interest-paying debt is 2.44%, which is lower than that of 2Q by 4bp. Due to the increasing contradiction between supply and demand of credit, the LPR quotation was further lowered in August, and the company's asset-side pricing is still facing downward pressure, but the further decline in 3Q capital interest rate helps to improve the cost of market liabilities. At the same time, the company itself also strengthens the management of structural deposits and other high-interest liabilities, leading the comprehensive debt cost down.
Looking back, the cut in deposit listing rates will help to narrow the downward pressure on spreads. The company's official website announced on October 1 that it would lower the listing interest rate of RMB deposits, which mainly involves time deposits of more than 1Y, but no adjustment has been made to current and public deposits. Among them, 1Y-3Y savings time deposit downgrade 15bp5Y savings time deposit downgrade 20bp. The reduction of deposit listing interest rate helps to slow down the pressure of interest margin narrowing, but considering that demand and public deposits have not been adjusted, the improvement of debt cost may be relatively post-positioned, the intensity is also slightly lower, and the dividend released by the adjustment of deposit listing interest rate is relatively weak.
Benefiting from the low interest rate environment, non-interest income is growing rapidly. The company's non-interest income in the first three quarters rose 55.3 per cent to 1 billion from a year earlier, down 35.5pct from the previous quarter. As the low base effect began to fade, the company's non-interest income growth slowed, but still recorded a high level of more than 50 per cent. In terms of non-interest income structure, net fee and commission income in the first three quarters rose 16.3 per cent to 353 million year-on-year, which is expected to be mainly driven by wealth management business; net other non-interest income rose 90 per cent to 647 million year-on-year, mainly driven by investment income (YoY+77.8%).
The bad "double drop" has been achieved, and the ability to offset risks has been further improved. By the end of 3Q, the balance of non-performing loans of Xiamen Bank was about 1.63 billion, a decrease of 36 million compared with the end of 2Q, the non-performing loan ratio decreased by 4bp to 0.86% compared with the end of 2Q, the non-performing indicators achieved a "double drop", and the interest rate decreased by 19bp to 0.68% compared with the end of 2Q, and the asset quality continued the excellent performance in the early stage. In terms of provision level, the company's provision coverage increased from 21pct to 385% at the end of 2Q, and increased 2bp to 3.31% at the end of 2Q compared with the end of 2Q. 3Q loan loss provision increased by about 240 million, about 170 million less than the same period last year, and the company's risk offset ability was further improved. While asset quality continues to improve, the company still maintains a prudent provision policy, with 3Q impairment losses / average total assets of 0.4%, an increase of 7bp over 2Q.
The expansion of risk-weighted assets has accelerated and the capital adequacy ratio has declined. At the end of 22Q3, the company's core tier one capital adequacy ratio / tier one capital adequacy ratio / capital adequacy ratio was 9.72%, 10.86% and 14.11% respectively, which was lower than that at the end of 2Q by 0.11/0.16/0.24pct. Capital adequacy ratios at all levels of the company have declined, or have been affected by the acceleration of risk-weighted asset expansion. As of the end of 3Q, the company's risk-weighted assets grew by 18.4% year-on-year, an increase of 1pct compared with the end of 2Q. On September 28, the company announced that 5 billion of convertible bonds were accepted by the CSRC for administrative license. In the future, with the issuance of convertible bonds, the company releases demands for conversion or strong performance, and the thickening of core first-tier capital will also help to expand business space.
Earnings forecasts, valuations and ratings. Xiamen Bank is one of the most comprehensive urban commercial banks in Fujian Province. The economic development of Hercynian Economic Zone is strong, and the company's operating location advantage is prominent. The credit of Xiamen Bank is mainly invested in public business, and mainly invested in manufacturing, wholesale and retail, while the retail end is inclined to personal operating loans and housing mortgage loans. At the same time, the quality of the company's assets is excellent, and the 3Q non-performing loan ratio has further dropped to 0.86%. The higher provision coverage rate makes the company have a strong ability to offset risks and greatly expand the profit smoothing space. The company's current issue of convertible bonds has been accepted by the CSRC, and after the issuance of convertible bonds is successfully landed, it will help to further thicken the core first-tier capital and expand the company's operating space. From 2022 to 2024, the EPS forecast of the maintenance company is 0.95 pound 1.08 yuan, and the current stock price corresponding to the PB valuation is 0.62, 0.56 and 4.30 times, respectively, and the PE valuation is 5.45, 4.80 and 4.30 times, respectively, maintaining the "overweight" rating.
Risk hint: macroeconomic downward pressure increased, broad credit is not as strong as expected.