Event: Changsha Bank released its quarterly report for 2023, with operating income of 18.75 billion, an increase of 8.4% over the same period last year, and a net profit of 5.84 billion, an increase of 9.2% over the same period last year. The non-performing loan ratio was 1.16%, unchanged from the previous month, and the provision coverage rate was 311%, a decrease of 2pct.

The growth rate of revenue and profit has declined, which is in line with the trend of the industry. 1) 3Q23's revenue increased 1.6% year-on-year, month-on-month-9.8pct, mainly due to interest spreads continued to decline, and fair value change profit and loss and exchange profit and loss fell year-on-year drag 3Q23 other non-interest income down 23.5%. 2) 3Q23 net profit increased 6.4% year-on-year, month-on-month downside 6.2pct. The quality of the company's assets remained stable, the non-performing rate was unchanged at 1.16% month-on-month, and the provision coverage rate decreased by 2pct to 311%.

The growth rate of scale has slowed down, and assets have exceeded trillion yuan. Interest-bearing assets rose 15.8% year-on-year in the third quarter, a month-on-month decline in 0.3pct, mainly due to a slowdown in the growth of loans and investment, while loans increased by 15.2% year-on-year, with a month-on-month decline in 3.4pct. It is speculated that the slowdown in the growth rate of retail loans (1H23 retail loans accounted for 37.9%, down 2.5pct from 2022); investment increased 9.8% year-on-year, a month-on-month decline in 1.2pct, which may be due to fluctuations in the income of trading financial assets. By the end of August, the company's assets exceeded trillion yuan, becoming the first city commercial bank in central China to list A shares with a scale of more than one trillion yuan.

The decline in net interest margin is small, and the cost on the debt side is better controlled. It is estimated that the 3Q23 net interest margin only decreases by 4bp, which is smaller than that of the same industry. 1) Asset side: the rate of return on interest-bearing assets of 3Q23 is lower than that of 7bp. It is speculated that the decline in the proportion of retail loans is mainly due to the decline in the growth rate of retail loans, but as the main business of Changsha Bank is located in Changsha City, where consumption is more exuberant, the proportion of retail loans is expected to pick up as the economy gradually recovers. 2) debt side: the 4bp of interest-bearing debt cost ratio decreased month-on-month, mainly due to the downward interest rate of deposit listing and better deposit cost control.

The quality of assets remained stable and the non-performing rate remained unchanged from the previous month. The company's defect rate was unchanged at 1.16% month-on-month, the attention rate dropped 1bp to 1.63% month-on-month, and asset quality remained stable. The company's provision coverage has dropped to 311% from the previous month, and the risk offset capacity is relatively adequate.

Investment advice: the company is rooted in Changsha, with the geographical advantages of county finance and the solid public foundation brought by deep ploughing, and the future scale is expected to continue to develop steadily above the trillion yuan. The company's net profit is expected to grow by 10.6%, 15.1% and 16.3%, respectively, from 2023 to 2025, and the current share price corresponds to 0.5x23PB, maintaining a "buy" rating.

Risk hints: the economy is falling faster than expected, finance continues to yield profits, real estate risks are exposed, and business transformation is blocked.