Investment points: 23H1 the operating income of Bank of Shanghai decreased by 5.66% compared with the same period last year, and the net profit increased by 1.27% compared with the same period last year. The company's 23Q2 profit growth rate picked up month-on-quarter, loans were concentrated in economically developed areas, the proportion of demand deposits increased, the non-performing rate decreased month-on-month, and we maintained the company's "better than the market" rating.
The margin of revenue decline narrowed. The operating revenue of 23Q2 Bank of Shanghai fell 4.1 per cent year-on-year, significantly narrowing the decline in 23Q1 revenue (- 7.1 per cent); 23Q2's homed net profit fell 0.4 per cent year-on-year.
Loans are concentrated in economically developed areas. The regions with the largest lending strength of 23H1 are the Shanghai region and the Yangtze River Delta region (except Shanghai), which contribute 52% and 45% of the net loan increase respectively. The defect rate in the Bohai Rim region is lower than that in 22 years, while that in the Pearl River Delta and the central and western regions remains stable compared with 22 years. Due to the influence of individual large risk business, the overall non-performing loan ratio in the Yangtze River Delta region has increased slightly.
The proportion of demand deposits has increased, and the cost of RMB deposits has been reduced. 23H1's net interest margin was 1.40%, down 26bps from a year earlier. By making every effort to expand low-cost liabilities, the company transferred the average interest payment rate of RMB debt to lower 10bps than the same period last year, improved the deposit structure, and accounted for 37.8% of demand deposits at the end of 23Q2, which increased 0.9pct compared with 22Q2, and further reduced the interest payment rate on deposits.
Asset quality shows a good trend. The non-performing rate of 23Q2 fell by 3bp to 1.22% compared with 23Q1, of which the non-performing loan ratio of corporate loans fell by 0.15pct to 1.41% from the end of 2022. The weaker-than-expected economic recovery still has a negative impact on personal repayment ability. The non-performing loan ratio of personal loans has increased by 0.15pct to 0.98% compared with the end of 2022, but the generation of non-performing personal loans has been lower than that of the same period in 2022 and gradually stabilized.
Investment advice. We predict that the EPS from 2023 to 2025 will be 1.54,1.63,1.71 yuan, and the growth rate of net profit will be 3.07%, 5.36% and 4.68%. According to the DDM model (see Table 2), we get the reasonable value of 8.11RMB. According to the PB-ROE model, we value the 2023E PB of the company at 0.47x (0.62x of the comparable company), and the corresponding reasonable value is 7.18RMB. Therefore, the reasonable value range is 7.18-8.11 yuan (corresponding to PE 4.65-5.25 times in 2023, PE 4.61 times for peer companies), maintaining a "better than the market" rating.
Risk hints: the solvency of enterprises has declined, asset quality has deteriorated significantly, and major changes have taken place in financial regulatory policies.