Dongguan Agricultural and Commercial Bank ploughs the Dongguan market, based on the development of Dawan area, solid customer management and optimistic business development.

The company's operating efficiency increased steadily in the first half of 2023, the business scale grew steadily, and the risk offset ability continued to be consolidated.

Matters: Dongguan Agricultural and Commercial Bank released its mid-2023 report that the operating income in the first half of the year was 7.265 billion yuan, and the net profit returned to its mother was 3.583 billion yuan, which was + 0.73% and 1.20% respectively compared with the same period last year. The non-performing loan ratio decreased by 0.04pct to 0.86% compared with the end of last year.

Revenue growth is steady. 2023H1 operating income of Dongguan Agricultural and Commercial Bank of China is + 0.73% (2023Q1 + 0.73%) and net profit is + 1.20% (2023Q1 + 8.47%). According to the disassembly of profit factors: 1) on the income side, the company's 2023H1 net interest income / non-interest income is respectively + 0.48% and 1.42% compared with the same period last year, and the slowdown in net interest growth is mainly affected by the decline in interest entities and market interest rates. The non-interest side benefits to some extent from the incentives of inclusive small and micro loan support tools. 2) on the expenditure side, the company's 2023H1 cost-income ratio is 28.86%, year-on-year-0.21pct, and the company continues to strengthen the fine management of expenses. 3) on the provision side, the company's 2023H1 provides for asset impairment loss + 2.39% compared with the same period last year, in which the company prudently deals with credit risk and maintains the provision to enhance risk resistance. 2023H1 loan impairment loss is + 18.68% compared with the same period last year.

The scale of assets and liabilities increased steadily. 1) steady growth in the scale of assets and liabilities: the total assets and total liabilities of the company at the end of 2023H1 were + 4.34% and 4.43% respectively compared with the end of last year (2022H1 was + 5.94% at the end of last year), of which loans and deposits were + 6.95% and 5.82% respectively over the end of last year (2022H1 was 7.63% at the end of last year compared with the end of last year). The steady growth of loans and financial investment led to the growth of assets. 2) the interest margin fell with the industry: 2023H1's net interest margin was 1.73%, year-on-year-15bps, in which the rate of return on interest-bearing assets and the cost ratio of interest-bearing liabilities were-27bps/-13bps respectively.

Poundage business declined slightly, while other non-interest rates improved as a whole. 1) poundage business declined slightly: the company's 2023H1 fee and commission net income was-7.03% year-on-year, mainly due to the downward market interest rate, financial management business fee and commission income-35.87% year-on-year. 2) the net income of financial instruments performed well: the net income of the company's 2023H1 financial instruments was + 24.47% compared with the same period last year. In the first half of the year, the company took advantage of the downward opportunity of market interest rates to increase the sale of financial investment assets to achieve price difference income. 3) the incentive effect of the inclusive small and micro loan support tool is remarkable: the company's 2023H1 other operating income is + 62.48% compared with the same period last year. The loan scale of the company's inclusive small and micro enterprises increased significantly in the first half of the year, and the incentive fund income increased accordingly.

The overall quality of assets is stable, and the ability to offset risks continues to be consolidated. 1) the overall asset quality is stable: the non-performing loan ratio and concerned loan ratio at the end of the company's 2023H1 are 0.86% and 1.67% respectively, respectively-0.04pct/+0.32pct compared with the end of the previous year, and the non-performing loan ratio at the end of the 2023H1 is-0.11pct/+0.08pct compared with the end of the previous year. The company is more prudent in evaluating asset quality and actively does a good job in loan risk prevention and control. 2) risk offset capacity continues to be consolidated: at the end of 2023H1, the company's provision coverage rate is 398.34%, which is + 24.51pcts compared with the end of last year, and the risk resistance capability is further consolidated.

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: steady growth and coordinated development. Dongguan Agricultural and Commercial Bank ploughs the Dongguan market, based on the development of Dawan area, solid customer management and optimistic business development. The company's operating efficiency increased steadily in the first half of 2023, the business scale grew steadily, and the risk offset ability continued to be consolidated. Taking into account the company's prudent response to credit risk, continued provision increase, and the relatively stressful market pricing environment since 2023, we adjust the company's 2023 EPS forecast of RMB 0.88 / 0.94 (the original forecast is RMB1.00 / 1.12), and the new EPS forecast of 2025 is RMB1.02, and the current H share price corresponds to the 2023 0.81xPB.