Semi-annual report summary: 1, revenue, net profit year-on-year growth rate are marginal upward. Qilu Bank's revenue in the first half of 2023 was + 10.9% compared with the same period last year (vs 1Q23 + 8.7%), and its net profit increased by 15.5% (vs 1Q23 + 12.3%).

2. The quarterly net interest income is + 4.1%, the annualized net interest margin is 1.81%, the annualized rate of return on assets is 3.87%, and the interest rate of interest-bearing liabilities is 2.10%. 3. Assets and liabilities: loans increased by 17.1% over the same period last year, deposits increased by 18.5% over the same period last year, and retail investment was better than the same period last year. On the asset side: interest-bearing assets increased by 17.0% compared with the same period last year; total loans increased by 17.1% year-on-year, but single-quarter loans increased by 165 million year-on-year, but increased by 780 million in the first half compared with the same period last year, of which retail loans increased by 1.6 billion, thanks to good retail sales in the first quarter. On the debt side: interest-bearing liabilities increased by 17% compared with the same period last year; total deposits increased by 18.5% year-on-year, and deposits grew faster than loans. 4. Fine dismantling of deposits and loans: public investment is the main support, individual loans are + 17% compared with the same period last year, and the proportion of fixed deposits has increased by 3 points. Credit investment: 75.5% of the public share, 26.2% of retail sales and-1.7% of bills increased in the first half of 2023. Public loans: the first three major industries are wholesale, leasing service and construction, with increased support for wholesale and leasing service. Retail loans: investment increased steadily, with mortgages, operating loans and credit cards accounting for 17.3%, 8.6% and 0.4% of new loans respectively, a net increase of 4.49 billion, 2.24 billion and 93 million respectively over the beginning of the year. Individual loans as a whole increased by 17% year-on-year and 9% over the beginning of the year. Deposit side: both public and individual fixed activities are increasing compared with the same period last year, and the proportion of time deposits is slightly higher than the same period last year. 5. Net non-interest income: net other non-interest led to a rebound in the growth rate of net non-interest income compared with the same period last year. Net non-interest rose 8.9 per cent year-on-year (vs 1Q23-2.8 per cent). Among them, the net handling fee was-26.9% year-on-year (vs 1Q23-10.5% year-on-year), mainly due to a year-on-year decline in agency income. Net other non-interest income rose 64.7 per cent year-on-year (vs 1Q23 + 7.1 per cent year-on-year), a significant increase in growth, mainly due to a substantial increase in fair value change gains and losses compared with the same period last year. 5. Asset quality: bad maintenance of optimization trend, further improvement of the margin of safety. Adverse dimension: the defective rate continued to reduce 1bp to 1.27% compared with the previous month. The net bad generation rate is 0.85%, the month-on-month increase in 5bp, and the quality of new assets is still at an excellent level. The proportion of note loans fell to 1.60% from a month earlier, an all-time low. Provision dimension: the provision coverage increased by 17.19 percentage points month-on-month to 302.06%, and the loan-to-loan ratio increased by 3.84%, an increase of 20bp. Asset quality of all business lines: the public defect rate decreased to 1.46% compared with the beginning of the year, maintaining the improvement trend, and the retail defect rate increased by 1bp to 0.97% compared with the beginning of the year, and the asset quality is relatively stable. Non-performing real estate rose 4.26 points to 6.77%, but the scale of real estate loans continued to decline, as of 1H23 real estate loans totaled 5.35 billion yuan, accounting for 1.89% of the total loans, down 0.7 points from the end of 2022. 6. County finance: the county market continues to be ploughed, and remarkable results have been achieved in serving the revitalization of the countryside. the county coverage rate in the province has further increased to 59%, and the county deposit has increased by 14.2% over the end of last year, which is 3.5 points higher than that of the whole bank. Loans increased by 16.8% over the end of last year, and the growth rate was 6.1 points higher than that of the whole bank.

Investment suggestion: company 2023E, 2024E, 2025E PB 0.58X/0.52X/0.47X; PE4.61X/4.05X/3.58X. Qilu Bank pays close attention to the conversion policy of new and old kinetic energy in Shandong, in the face of fierce competition environment, combined with the unique strong county economy in the province, vigorously develop county finance and realize misplaced competition. At the same time, the company continues to make efforts to create finance, promote retail transformation, continue to optimize the negative structure, fully expose adverse risks and speed up clearance. It is recommended that active attention be paid to it.

According to the published China report, we fine-tune the profit forecast and expect the net profit from 2023 to 2025 to be 4.11 billion yuan, 4.679 billion yuan and 5.291 billion yuan (the previous value is 4.145 billion yuan, 4.791 billion yuan and 5.5 billion yuan).

Risk hint: the economic downturn is higher than expected, and the company's operation is not as expected.