Guiyang Bank resonates with the regional strategy with steady scale growth, optimization of negative asset structure, continuous business transformation and structural adjustment, stable asset quality and steady increase in provision level.

Matters: Guiyang Bank released its mid-2023 report, with an operating income of 7.715 billion yuan and a net profit of 2.87 billion yuan in the first half of the year, with a year-on-year net profit of-3.12% and 2.29% respectively, and the non-performing loan ratio was 1.47% higher than that of + 0.02pct at the end of last year.

The interest rate difference factor fluctuated in the second quarter, and the growth rate of income and profit decreased slightly. The 2023H1 operating income of Guiyang Bank is-3.12% (+ 3.12% in the first quarter) and the net profit is-2.29% (+ 1.07% in the first quarter). According to the disassembly of profit factors: 1) on the income side, the company's net interest income and non-interest net income in the first half of the year are-2.70% and 6.43% respectively compared with the same period last year (+ 7.14% and26.90% in the first quarter respectively) The net interest end is mainly affected by the narrowing of the net interest margin Although the non-interest side fee income continued to decline in the second quarter, the significant increase in rental income brought about some improvement. 2) on the expenditure side, the cost-to-income ratio of 2023H1 is 24.38%, which is higher than that of 2022H1 and 2021H1 + 1.63pcts/-0.63pct respectively, and the overall cost control of the company remains stable. 3) on the provision side, the overall asset impairment loss of 2023H1 was-6.93% compared with the same period last year, mainly because the impairment loss of long-term equity investment was significantly reduced by 190 million yuan, helping to boost profits.

Steady growth in scale and optimization of negative structure. 1) steady growth in scale: the total assets and total liabilities of the company at the end of 2023H1 were + 3.72% and 0.87% respectively compared with the end of last year (2022H1 was 5.05% at the end of last year and 3.42% at the end of last year). The expansion of assets was stable, and the debt side was mainly affected by the decline in the scale of public deposits. 2) Optimization of negative asset structure: on the asset side, the loan balance at the end of 2023H1 was + 9.55% higher than that at the end of last year. Centering on regional strategic deployment, the company continued to increase the amount of credit in key areas and industries, and maintained a good growth trend in loans. The ratio of loans to total assets increased 2.49pcts over the end of last year, and the asset structure was optimized. On the liability side, savings deposits at the end of 2023H1 accounted for 47.64%, compared with + 3.31pcts at the end of last year. 3) the interest margin has narrowed: the company's 2023H1 net interest margin is 2.18%, which is-18bps/-9bps compared with the same period last year and the whole of last year, respectively, mainly affected by concession, lower market interest rates, repricing and fixed deposits.

Fee income is still waiting to be repaired, and the investment business is performing smoothly. 1) the handling fee income still needs to be repaired: 2023H1's net fee and commission income is-36.43% year-on-year (year-on-year-31.74% in the first quarter). On the one hand, the company continues to adjust the business structure and reduce the non-standard scale, resulting in investment banking fee income-35.91% year-on-year; on the other hand, affected by market fluctuations, wealth management product fee income-37.72%. The company's wealth management business performed relatively smoothly under market pressure. The number of wealth customers and AUM at the end of 2023H1 were + 6.27% and 5.08% respectively compared with the end of last year, and the agency fee income was + 13.02% year-on-year. 2) stable performance of the investment business: the company's 2023H1 "investment income + fair value change income" totaled + 3.27% compared with the same period last year, the company's investment and trading strategy was sound, and the income performance was stable.

The quality of assets is stable and the level of provision is adequate. 1) stable asset quality: at the end of 2023H1, the company's non-performing loan ratio and concerned loan ratio were respectively 1.47% and 3.30%, respectively + 0.02pct/+0.45pct compared with the beginning of the year. The company insisted on "eliminating stock, preventing new additions, and controlling deterioration", increased efforts to collect, resolve and dispose of non-performing assets, and strictly determined the classification of assets. 2) the risk offset ability is improved: the company's 2023H1 final provision coverage rate is 274.46%, which is higher than + 13.60pcts at the end of last year, and the loan ratio is 4.05%, which is higher than + 0.26pct at the end of last year.

Risk factors: macroeconomic growth is falling faster than expected, asset quality is deteriorating significantly, net interest margin is falling faster than expected, regional economic development is not as expected, and regional inter-industry competition is intensified.

Investment suggestion: the structure is improved and the risk is stable. Guiyang Bank resonates with the regional strategy with steady scale growth, optimization of negative asset structure, continuous business transformation and structural adjustment, stable asset quality and steady increase in provision level. Considering that the market pricing environment is still under pressure since this year, we adjust the company's EPS forecast for 2023-24-25 to 1.55 yuan / 1.63 yuan / 1.75 yuan (the original forecast is 1.68 yuan / 1.83 yuan / 1.99 yuan), and the current A share price corresponds to 0.37x PB in 2023. According to the calculation of the three-stage dividend discount model (DDM), the company is given a target valuation of 0.42xPB in 2023, corresponding to the target price of 6.50 yuan, maintaining the "overweight" rating.