Events:

On August 28, Jiangyin Bank released an interim report of 2023, with revenue of 2.06 billion in the first half of the year, an increase of 1.2% over the same period last year, and a net profit of 660 million, an increase of 14.2% over the same period last year. The weighted average return on equity (ROAE) was 8.96%, an increase of about 0.3pct over the same period last year.

Comments:

Revenue growth has slowed and earnings growth has given a slight boost. In the first half of the year, Jiangyin Bank's revenue, pre-provision profit and homing net profit increased by 1.2%, 13.2% and 14.2% respectively compared with 1Q. The growth rate was-2.8,8.1 and 1.5pct respectively.

Among them, the growth rate of net interest income and non-interest income is-2.2% and 13.8% respectively, which is-4.5% and 2.8pct respectively compared with 1Q. Split earnings growth structure: (1) net interest income continues the "volume premium" model, the scale of the performance growth margin slightly slowed down, the drag degree of interest spreads has increased. (2) the pull of non-interest on performance is significantly stronger than that of the previous quarter, which constitutes the main support for profit growth in the first half of the year. (3) the impact of operating expenses on performance growth has changed from negative to positive, and the work of reducing costs and increasing efficiency has been effective. The cost-to-income ratio in the first half of the year is 27.1%, which is about 1pct lower than the same period last year. (4) the marginal drag of provision on performance is weakened, and when the asset quality is sound and good, the provision appropriately feeds profits.

The pace of table expansion has slowed down, and the investment of loans from different places in the province has a high bearing. At the end of 2Q23, Jiangyin Bank's total assets, interest-bearing assets and loans grew at a year-on-year growth rate of 9.9%, 10% and 12.3% respectively, which was-1.7,-1.9 and 0.3pct, respectively, compared with the end of the previous quarter. In terms of loans, there was an increase of 8.79 billion in the first half of the year, an increase of 600 million over the same period last year, of which 2Q increased by 3.64 billion in a single quarter, an increase of 620 million over the same period last year. The proportion of interest-bearing assets to interest-bearing assets increased by 2pct to 63.4% compared with the end of the last quarter. At the structural level, 2Q increased by 27.9,0.9 and 770 million respectively for public, retail and bills in a single quarter, an increase of 1.09 billion over the same period last year, and a decrease of 2.5 and 220 million, continuing the situation of 1Q being "strong to public and weak in retail". The marginal recovery of prosperity and the intensity of low-interest asset allocation such as bills fell. Among them, loans to agriculture-related and small and micro enterprises of the parent company increased by 7.9 billion in the first half of the year, accounting for 90% of the loans, the same as at the beginning of the year. Industry investment remains focused on manufacturing, with manufacturing loans rising by 3.1 billion in the first half of the year, accounting for 30 per cent of loans. On the retail side, operating loans, mortgages and consumer loans increased by 6,-9.4 and 490 million respectively, an increase of 200 million over the same period last year, an increase of 8.5 billion, and a less increase of 280 million. At the regional level, loans from different places in the province increased by 2.26 billion in the first half of the year, an increase of 1.13 billion over the same period last year.

The growth rate of deposits has slowed down, which is better for the increase in the public current period. At the end of 2Q23, Jiangyin Bank's total liabilities, interest-paying liabilities and deposits grew by 9.8%, 10% and 13.5% respectively over the same period last year, down 2%, 2.2% and 1pct respectively from the previous quarter. Deposits increased by 10.67 billion in the first half, up 4.1 billion from a year earlier, and as a share of interest-paying liabilities rose 3pct to 87.5 per cent from the previous quarter.

Among them, 2Q deposits increased by 4.17 billion in a single quarter, 500 million less than the same period last year. In terms of maturity, 2Q single-quarter time and demand deposits increased by 15.6 and 3.36 billion respectively, an increase of 1.7 and 1.46 billion over the same period last year. Among them, 2Q single-quarter company demand deposits increased by 2.89 billion, an increase of 1.85 billion over the same period last year, and the proportion of deposits increased by 1.6pct to 20.2% compared with the end of 1Q. The investment of public loans is more magnanimous, or part of it thickens the precipitation of low-interest funds.

NIM showed strong toughness. In the first half of the year, Jiangyin Bank announced a net interest margin of 2.2%, an increase of 15bp and 2bp compared with 1Q23 and 2022. It is estimated that the interest rate spread in the first half of the year is 1.95%, narrowing 8bp compared to 1Q and 16bp narrowing compared with 2022. On the asset side, interest-bearing assets and loan yields in the first half of the year are 4.06% and 4.68% respectively, compared with the downward 6% and 30bp in 2022. Under the background that the effective financing demand has not yet recovered, the downward pressure on loan pricing still exists. On the debt side, interest-paying liabilities and deposit cost rates are 2.08% and 2.02% respectively, which are higher than those of 10% and 11bp in 2022, showing the effectiveness of debt cost control.

The company said that it has incorporated key indicators such as "deposit and loan interest rate" into the assessment of business objectives, and the work of reducing costs and increasing efficiency has been continuously promoted. According to the company's website, the interest rate of deposit listing for some products was cut again in August, and the dividend of debt cost control is expected to be released gradually. Looking forward to the whole year, the downward industry trend of loan interest rates is difficult to change, but with the continuous improvement of the company's debt cost management, interest spreads may remain strong and resilient.

The growth of non-interest income accelerated, and investment income was the main contributor. Non-interest income of 1H23 Jiangyin Bank rose 13.8 per cent year-on-year to 510 million, nearly 3pct higher than 1Q and 2.6pct to 24.5 per cent of revenue compared with 1Q.

Among them, fee and commission income continued to negative growth trend (YoY-42%), accounting for 7.3% of non-interest income, slightly higher 0.7pct than 1Q. In the first half of the year, net other non-interest income was 470 million, an increase of 22.9% over the same period last year, accounting for 92.7% of non-interest income. Of this total, investment income rose to 500 million (YoY+143%) year-on-year, still accounting for the majority of non-interest income in the first half of the year, or mainly driven by the strength of the bond market in the first half.

The defect rate remained low, and the provision coverage rate rose to more than 500%. At the end of 2Q, the defect rate of Jiangyin Bank was 0.98%, slightly higher than that at the end of the last quarter, unchanged from the beginning of the year, but still running at a low level; the attention rate increased to 1.24% from the end of the last quarter. The bad balance at the end of 2Q was 1.1 billion, which was about 50 million higher than that at the end of 1Q, and the asset quality remained stable. The balance of provision at the end of 2Q was 5.29 billion, an increase of 430 million over that of 1Q, and the amount of provision for the first half of the year remained unchanged. The annualized credit cost in the first half of the year was 1.78%, down 8bp from the same period last year, and the asset quality was a drag on performance. 2Q end-end provision coverage increased by about 19pct to a new high of 500% compared with the end of last quarter, and the loan-to-loan ratio increased to 4.92%, an increase of 0.3pct compared with the end of 1Q. The ability of risk compensation is strong, and the profit space is abundant.

The capital adequacy ratio has a strong margin of safety, and 1.8 billion of convertible bonds can be converted into equities. At the end of 2Q, the core level 1 / tier 1 / capital adequacy ratio of the company was 12.6%, 12.6% and 13.7% respectively, which decreased by about 0.4,0.4 and 0.35pct respectively compared with the end of 1Q, which was mainly affected by the dividend factor. Risk-weighted assets grew by 7.8%, the pace of statement expansion slowed, and capital consumption was reduced. At present, the company still has 1.76 billion convertible bonds to be converted, with an unconverted proportion of 88%. The latest conversion price is 3.96 yuan per share, with a strong ransom price of 5.15 yuan per share. The current stock price is 3.71 yuan per share, which has not yet reached the conversion price. On the whole, the safety margin of the company's capital adequacy ratio is thick, which provides strong support for the subsequent scale expansion.

Earnings forecasts, valuations and ratings. Jiangyin Bank ploughs the local market, has distinct geographical advantages, and the background of private shareholders overlays the qualification of a first-class corporate bank to provide great help for the company to obtain guests at the GambiB end. In recent years, the company has promoted the transformation strategy of Pratt & Whitney retail, focusing on the troika of "Pratt & Whitney, small and Micro, Retail". At the same time, since 2016, the company has actively laid out the surrounding market, and successively set up three branches in Changzhou, Wuxi and Suzhou to copy the local small and micro business model. The historical burden of the company's stock continues to fall, the new risks can be controlled, the pressure of bad generation is small, the margin of capital safety is thick, and there is broad room for table expansion in the future. However, considering that the financing demand of the market has not yet recovered, and the downward trend of loan interest rates is difficult to change, we adjust the EPS of Jiangyin Bank in 2023-25 to 0.85,0.98,1.14 yuan respectively (the previous value is 0.9,1.07,1.26 yuan), and the current stock price corresponds to the PB valuation of 0.51,0.46,0.42 times respectively, and the corresponding PE valuation is 4.37,3.78,3.25 times respectively, maintaining the "overweight" rating.

Risk hint: the process of economic recovery is less than expected, the customer base of large state-owned banks is sinking more strongly, and the interest rate of small and micro loans is falling more than expected.