Events:
On October 26, the Bank of Qingdao released its quarterly report of 2023, with operating income of 9.7 billion and YoY+1.8%, net profit of 3 billion and YoY+15.2% during the reporting period. The weighted average annualized rate of return on net assets is 12.21% YoYee 2.05pct.
Comments:
Excluding the disturbance of redemption of overseas preferred shares, revenue growth increased quarter-on-quarter. The revenue, pre-provision profit and net profit of Qingdao Bank in the first three quarters grew by 1.8 per cent, 4.5 per cent and 15.2 per cent respectively over the same period last year, down 0.7,0.2 and 0.5pct respectively from the first half of the year. Among them, net interest income and non-interest income grew by 12.4% and-17.2% respectively over the same period last year, down 1.1% and 0.3pct respectively from the first half of the year. In addition, according to the company's financial report, excluding the redemption of overseas preferred shares, revenue in the first three quarters increased by 9.6% compared with the same period last year. Split the growth structure of earnings compared with the same period last year, with scale expansion, net interest margin and provision as the main pull items; from the perspective of marginal changes, the positive contribution of scale expansion is enhanced, the impact of net interest margin is generally flat, non-interest income has widened from negative drag to 21.8pct, and the positive contribution of provision has increased.
3Q loans increased more than the same period last year, and the growth rate of interest-bearing assets increased to 9.2%. As of the end of 3Q, the balance of interest-bearing assets of the Bank of Qingdao increased by 9.2% year-on-year, 3.4 pct higher than at the end of the last quarter. Among them, loans, financial investment and interbank asset balances grew by 10.1%, 9.0% and 3.9%, respectively, up 1.2%, 6.8% and 1.1pct from the end of the last quarter. At the end of 3Q, the ratio of loans to interest-bearing assets increased by 0.4pct to 51.6 per cent from the end of the previous quarter. In terms of loan structure, the loan balance increased by 28.5 billion in the first three quarters, of which 3Q increased by 8.7 billion in the single quarter; among the 3Q new loans in the single quarter, the public (including discount) and retail loans increased by 6.3 billion and 2.4 billion respectively, an increase of 600 million and 3.2 billion respectively over the same period last year.
The growth rate of deposits is 14.3%, and the proportion of deposits is steadily rising. By the end of 3Q, interest-bearing liabilities and deposits of Qingdao Bank had increased by 9.9% and 14.3% respectively compared with the same period last year, an increase of 3.8% and 2.2pct respectively compared with the end of last quarter. The proportion of deposits rose slightly to 71.8% at the end of 2Q, the sixth consecutive quarter of increase. Among them, retail deposits and public deposits increased by 33% and 1.4% respectively compared with the same period last year, which were 2.4% and 1pct higher than those at the end of 2Q, respectively. Retail deposits maintained a strong growth trend; by the end of 3Q, retail deposits accounted for 47.1% of total deposits.
The net interest margin narrowed slightly from the medium-term 1bp to 1.84 per cent. The net interest margin of Bank of Qingdao in the first three quarters was 1.84%, narrowing 1bp compared with 23H1. In the context of the pressure on bank interest rate spreads, Qingdao Bank interest rate spreads show better resilience, and the asset side mainly improves the proportion of credit assets to achieve stable interest rates by optimizing the structure. Looking forward to the whole year, the LPR continuous pressure drop superimposed stock mortgage interest rates fell in June and August, the downward trend of loan interest rates is difficult to change, debt cost control measures are difficult to completely effectively hedge asset-side downward pressure in the short term, and interest spreads may still face some downward pressure during the year.
Non-interest income fell 17.2% from a year earlier, mainly dragged down by net other non-interest income. In the first three quarters, the bank of Qingdao's non-interest income fell 17.2% from the same period last year, which was 0.3 pct wider than in the medium term; non-interest income in the first three quarters was 2.81 billion, and 3Q non-interest income in a single quarter was 960 million. Non-interest income accounted for 29% of the first three quarters, slightly lower than 23H1 0.1pct.
In terms of the composition of non-interest income, 1) fee income increased by 6.9% to 1.34 billion compared with the same period last year, down 5.6 PCT from the medium term. 2) net other non-interest income fell by 31.2% to 1.48 billion year-on-year, narrowing 3.3pct than in the medium term. Under the background of the adjustment of interest rates in the bond market and the increase in the capital cost of foreign exchange swap business, investment income, exchange gains and losses and other income are under year-on-year pressure.
The defect rate continued to stabilize at 1.14%, and the provision coverage rate rose to above 250%. As of the end of 3Q, the non-performing loan ratio of Qingdao Bank was 1.14%. Since 2023, the non-performing loan ratio has remained stable for three consecutive quarters. Note that the loan rate fell 8bp to 0.68% from 2Q. Credit and other credit impairment losses were 3.23 billion in the first three quarters, down 10.6 percent from the same period last year. The credit impairment loss / average total assets in the first three quarters was 0.78%, an increase of 0.12pct over the first half of the year.
By the end of 3Q, the provision coverage increased from 17.3pct to 254.7% compared with the end of 2Q, and 19bp to 2.90% compared with the end of 2Q.
Increasing the speed of table expansion has intensified capital consumption, and the capital adequacy ratio at all levels has declined from the previous month. With the increase in the speed of table expansion, the year-on-year growth rate of 3Q risk-weighted assets increased significantly to 15.7% compared with the end of the previous quarter, and the intensity of capital consumption intensified.
By the end of 3Q, the core tier one capital adequacy ratio, tier one capital adequacy ratio and capital adequacy ratio of Qingdao Bank were 8.37%, 10.08% and 12.78% respectively, down 0.42,0.52 and 0.59pct respectively compared with the end of 2Q.
Earnings forecasts, valuations and ratings. 2023 is the first year of the strategic planning of Qingdao Bank in the new three years (2023-2025). In the next three years, we will focus on the four strategic themes of "adjusting structure, strengthening customer base, excellent coordination and improving capacity". We will make every effort to build a value-leading bank with "leading quality and effect, distinctive features and flexible mechanism". 3Q expansion increased month-on-month, excluding the disturbance of redemption of overseas preferred shares, revenue growth increased quarter-on-quarter in the first three quarters. In 2023-25, the EPS forecast is 0.60, 0.69, and 0.79 yuan, and the current stock price corresponding to the PB valuation is 0.62, 0.56, 0.51, respectively. Maintain a "buy" rating.
Risk hint: if the progress of the conversion between new and old kinetic energy in Shandong Province is not as expected, it may be a drag on the strength of the company's expansion.