The Bank of Chongqing has been operating steadily in the first half of 2023, and the company has actively participated in the construction of the Chengdu-Chongqing Shuangcheng Economic Circle and the new land and sea corridor in the west, promoting the steady growth of major business and improving asset quality and risk offset capacity.

Matters: the Bank of Chongqing released its mid-2023 report that in the first half of the year, the operating income was 6.975 billion yuan and the net profit was 2.906 billion yuan, which was + 3.07% and 4.38% respectively compared with the same period last year. The non-performing loan ratio decreased by 0.17pct to 1.21% compared with the end of last year.

The growth rate of performance is steady and improving. Bank of Chongqing 2023H1 operating income year-on-year + 3.07% (2023Q1 year-on-year + 1.55%), home net profit + 4.38% (2023Q1 + 2.69%), performance growth is steady and good. From the perspective of the disassembly of profit factors: 1) on the revenue side, the company's 2023H1 net interest income / non-interest income is 12.47% respectively compared with the same period last year (2023Q1 is 38.54% compared with the same period last year). The stabilization of net income business performance in the second quarter supports the overall revenue. 2) on the expenditure side, the company's 2023H1 cost-to-income ratio is 24.16%, year-on-year + 1.32pcts (2023Q1 year-on-year + 2.58pcts). Expenses have increased, but cost control has improved compared with the first quarter. 3) on the provision side, the company's 2023H1 provides for asset impairment losses of + 6.88% compared with the same period last year, of which the loan impairment loss is-11.30% compared with the same period last year. The improvement of credit asset quality helps to save credit costs, and the impairment loss of securities investment increases from-47 million yuan of 2022H1 to 326 million yuan. The company is prudent in dealing with financial investment risks.

The growth of the business scale is steady, and the interest rate spread follows the decline of the industry. 1) the growth of business scale is robust: at the end of 2023H1, the company's total assets / total liabilities were 6.30% higher than those at the end of last year (2022H1 + 7.22% 2022H1 7.45% respectively), of which loans and deposits were + 7.33% Universe 6.16% (2022H1 + 6.7% Universe 11.23% respectively). The company actively participated in the construction of the Chengdu-Chongqing Shuangcheng Economic Circle and the new land and sea corridor in the western region, promoting the steady growth of major business. 2) interest spreads decline with the industry: 2023H1's net interest margin is 1.63%, which is-15bps/-11bps compared with the same period last year and the whole of last year, respectively. We speculate that it is affected by downward interest rates on new loans, repricing and fixed deposits.

The performance of the investment business is bright, and the fee business still needs to be repaired. 1) the performance of the investment business is eye-catching: the total income of 2023H1 "investment income + fair value change profit and loss" is + 79.87% compared with the same period last year. The company deepens market research, adjusts investment trading strategy and business structure in a timely manner, accurately grasps the rhythm of trading and allocation, and the trading ability continues to improve, and the investment income is considerable. 2) the fee business still needs to be repaired: the company's 2023H1 fee and commission net income is-52.35% year-on-year (2023Q1 year-on-year-65.23%), with a slight decline but the overall business performance still needs to be repaired, mainly affected by the agent wealth management business (2023H1 revenue-65.42%).

Asset quality and provision coverage continued to be repaired. 1) Asset quality stabilizes and improves: the non-performing loan ratio at the end of 2023H1 is 1.21%, which is higher than that at the end of 2023Q1 and-0.03pct/-0.17pct at the end of last year. Facing the severe challenges of macroeconomic and financial situation, the company continues to strengthen credit risk prevention and control, strengthen risk investigation, early warning tracking and post-loan management, and strengthen risk disposal efforts to consolidate the foundation of asset quality. 2) the improvement of risk offset ability:

The coverage rate of company provisions at the end of 2023H1 is 251.88%, which is higher than + 16.97pcts/+40.69pcts at the end of 2023Q1 and the end of last year, and the risk offset ability is repaired under the improvement of asset quality.

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 advice: sound operation, quality repair. The Bank of Chongqing has been operating steadily in the first half of 2023, and the company has actively participated in the construction of the Chengdu-Chongqing Shuangcheng Economic Circle and the new land and sea corridor in the west, promoting the steady growth of major business and improving asset quality and risk offset capacity. Considering that the market pricing environment is still under pressure since 2023, we adjust the company's annual EPS forecast for 2023-24-25 to 1.41 yuan / 1.51 yuan / 1.69 yuan (the original forecast is 1.45 yuan / 1.57 yuan / 1.69 yuan). The current A share price corresponds to 0.57X PB in 2023. According to the calculation of the three-stage dividend discount model (DDM), we give the company A shares a target valuation of 0.62xPB in 2023 and maintain the target price of 8.7 yuan. Give the company H shares a 2023 valuation of 0.29xPB, corresponding to the target price of HK $4.40, and maintain the "hold" rating of the company's An and H shares.