On the evening of August 25, 2023, Qilu Bank disclosed 1H23 results. 1H23 achieved operating income of 6.08 billion yuan, YoY +10.88%; net profit of 2.0 billion yuan, YoY +15.49%; and an annualized weighted average ROE of 12.63%. As of the end of June 2023, the asset size was 55.4 billion yuan, the non-performing loan ratio was 1.27%, and the provision coverage rate was 302.06%.
1. Profit growth has rebounded and ROE has increased.
1H23's revenue growth rate was 10.9%, up 2.1 percentage points from 1Q23. The revenue growth rate maintained double-digit growth, ranking fourth among A-share listed companies, mainly due to continued rapid growth in credit scale, a steady decline in interest spreads, and a sharp increase in profit and loss from changes in investment income and fair value. China's revenue fell 26.8%, and the decline in revenue from the main financial services handled was a drag. Gimu's net profit grew 15.5%, up 3.2 percentage points from 1Q23, and its performance was relatively good. Thanks to high profit growth, the 1H23 annualized weighted average ROE was 12.63%, up 0.8 percentage points from the previous year.
2. The scale of credit has maintained a relatively rapid growth, and interest spreads have declined steadily and slightly.
The financial contribution of the county area has increased. The size of 23H1 assets, loans, and deposits was 5504, 2832, and 387.8 billion yuan, respectively, up 16.5%, 18.2%, and 17.1% year-on-year, respectively. In the first half of the year, all efforts were made on public retail, with loan increases of 19.6 billion yuan and 6.8 billion dollars, respectively. The company closely focuses on the economic endowments of counties in Shandong Province and uses the county area as an important support for strategic growth. The 23H1 county branch loan balance is 80.1 billion yuan, accounting for 28.2%, an increase of 1.62 percentage points compared to 2022.
Interest spreads declined steadily and slightly. 1H23 has a net interest spread of 1.86%, a slight decrease of 2BP from 1Q23, and a decrease of 10BP from 2022. The spread reduction has narrowed. On the asset side, the average yield on loans fell 27BP to 4.77% from 2022, and the average yield on interest-bearing assets fell 13BP to 3.98%. On the debt side, the interest payment rate on deposits decreased by 3BP to 2.14% compared to 2022, and the cost ratio of interest-bearing debt fell by 4BP to 2.20% compared to 2022.
3. The quality of assets is improving, and the capital adequacy ratio has increased slightly.
Asset quality continues to improve, and the non-performing loan ratio has been declining for five consecutive years. As of the end of June 2023, the non-performing loan ratio was 1.27%, a slight decrease of 1BP from 23Q1 and 2BP from the end of 2022; the interest loan ratio was 1.60%, down 4BP from 23Q1; and the overdue loan ratio was 1.06%, a slight increase of 7BP from the end of 2022. The provision coverage rate was 302.06%, a sharp increase of 17.22 percentage points from 23Q1. The provision coverage rate was over 300%, and the provision was sufficient; the loan ratio was 3.84%, an increase of 20 BP over 23Q1.
Thanks to higher profits, the capital adequacy ratio increased slightly. As of the end of June 2023, the core Tier 1 capital adequacy rate/Tier 1 capital adequacy ratio/capital adequacy ratio were 9.67%/11.38%/14.42% respectively, all up from 23Q1.
Investment advice: Profit growth is picking up and asset quality is improving. The Shandong region, where Qilu Bank is located, has a well-developed economy, and the effects of industrial transformation are remarkable. Credit scale continues to grow rapidly, profit growth is picking up, and asset quality continues to improve. The conversion of 8 billion convertible bonds into shares will support business development. We maintained a target valuation of 0.7 times 23 PB, corresponding to a stock price of 4.92 yuan/share, and maintained a “increase in holdings” rating.
Risk warning: Stock mortgage interest rates have been lowered and LPR has declined; the economic downturn has exceeded expectations, and asset quality has deteriorated.