Event: on October 27, the Bank of Jiangsu released its quarterly report for 2023, showing revenue, pre-provision profit and net profit of 586.8, 456.7 and 25.65 billion in the first three quarters, up 9.2%, 9.2% and 25.2% respectively over the same period last year.

The annualized weighted average ROE was 18.08%, an increase of 1.53pct over the same period last year. Our comments are as follows:

High growth in scale, resilience of interest spreads and falling credit costs support high earnings growth. ROE bucked the trend and boosted the company's net profit growth of 25.2% in the first three quarters, ahead of listed banks. The high profit growth drives the profitability to improve 1.53pct against the trend. From a split point of view, the main contribution comes from the steady growth of revenue and the decline of credit cost.

(1) the scale maintained a relatively rapid growth trend, with a year-on-year growth rate of 14.2%, and deposits and loans were booming, with deposits and loans increasing by 14.2% and 12.9% respectively over the same period last year. Under the background of the pressure on the industry interest margin, the company's net interest margin remains resilient. We estimate that the net interest margin in the first three quarters is 2.27%, which is only down by 5bps from the same period last year. In terms of non-interest income, investment income, which accounts for a major portion of the investment income, increased by 14.6% compared with the same period last year. Stable volume and price, non-interest stable growth supported a better revenue performance. (2) the loss of asset impairment in the first three quarters decreased by 21.2% compared with the same period last year. When the asset quality is stable, the reduction of the pressure on the provision has a great contribution to the profit growth.

In a single quarter, Q3 revenue maintained a good growth under last year's high base, with an increase of 6.4% over the same period last year. Q3's single-quarter net profit maintained a high growth trend of more than 20%. Marginal positive factors come from Q3 single-quarter net interest margin to maintain resilience, due to the low proportion of stock mortgage loans (1H23 mortgage loans account for 14.4% of total loans), the impact of stock mortgage interest rate replacement is relatively small, superimposed companies take the initiative to optimize the asset-liability structure.

The scale continues to increase, and the structure continues to be optimized.

The size of the company continued to grow, with interest-bearing assets, loans and deposits increasing by 11.4%, 11.5% and 17.1% respectively over the beginning of the year, mainly due to relatively good regional credit demand, and loans to the public increased by 19.7% over the beginning of the year. Manufacturing loans increased by 23.7% to 239.6 billion, accounting for 23% of public loans.

The conversion of debt to equity was completed in the third quarter, and the expansion of equity helped the company to maintain its rapid business expansion.

From the perspective of asset-liability structure, small and micro loans with high asset-end returns, especially inclusive small and micro loans with policy subsidies, have maintained rapid growth, which is expected to play a certain role in stabilizing the level of return on assets. On the debt side, under the trend of fixed deposits in the industry, the company's fixed activity ratio remained relatively stable in the first half of the year. Judging from the growth rate of Q3 interest expenditure in a single quarter, we expect the company's fixed activity ratio to remain stable.

Stable asset quality and stable provision

At the end of September, the non-performing loan ratio of the Bank of Jiangsu was 0.91%, unchanged from the previous month; focusing on the loan ratio of 1.30%, slightly higher 1bps than the previous month. It is estimated that the net rate of bad production in a single quarter is 0.93%, which remains at a reasonable level. Combined with static and dynamic indicators, the company's asset quality remains stable, and the adverse pressure is not great. At the end of September, the provision coverage rate and loan allocation ratio were 378.1% and 3.33% respectively, which was relatively stable on a month-on-month basis.

Investment advice: regional economic advantages superimposed capital replenishment in place, the company's profit growth is expected to maintain industry leadership. Combined with the three quarterly reports, the company has completed the conversion from debt to equity, the capital replenishment is in place, and the regional credit demand is relatively good, and the scale is expected to maintain rapid growth. The asset structure continues to be optimized, the net interest margin is stable, the asset quality continues to be excellent and the provision is sufficient, which is expected to boost earnings growth. In the long run, Jiangsu Bank is based in Jiangsu Province, has a deep background of state-owned assets, and takes the lead in the market share of deposits and loans in the province, so it is expected to fully benefit from the dividend of high-quality development of regional economy.

We estimate that the growth rate of net profit from 2023 to 2025 is 23.5%, 19.9% and 19.7%, respectively, and the corresponding BVPS is 12.12,14.19,16.66 yuan per share. On October 27, 2023, it closed at 6.89 yuan per share, corresponding to 0.57 times the 2023 PB, maintaining a "highly recommended" rating.

Risk hints: economic recovery, the recovery of physical demand is not as expected, the speed of table expansion, the level of net interest margin and asset quality are affected.