Introduction to this report:

Minsheng Bank's previous risk control model was quite extensive, and its historical burden was heavy, which dragged down its performance and valuation performance. Since 2023, asset quality has improved, and the risk of adverse new generation has been reduced. There is plenty of room for subsequent asset quality improvement, and performance recovery can be expected.

Summary:

Investment suggestion: The net profit growth rate for Minsheng Bank in 2023-2025 is 4.47%/9.49%/11.99%, corresponding to 2023-2025 EPS 0.77/0.85/0.96 yuan. The target price of HK$3.96 was granted for the first coverage, corresponding to 0.30 times PB in 2023, and for the first coverage, an increase in holdings rating.

Private shareholders still dominate. Minsheng Bank is the first national joint-stock commercial bank established entirely funded by private enterprises in China. The shareholding structure is scattered, and equity changes were frequent in the early stages of development. The top ten shareholders in the 2023Q3 are still dominated by private enterprises. A single private enterprise shareholder holds no more than 5% of the shares, and the share of state-owned assets is small. Although the top ten shareholders of Minsheng Bank have been basically stable since 2020, the shares of major shareholders such as Oceanwide are currently frozen or pledged, and the stability of shares remains to be observed.

An inflection point in asset quality is beginning to appear. ① Historical burdens have gradually come out: Minsheng Bank's past risk control model has been extensive, and has experienced many risk events. Among them, risks in the micro, IT, and mining industries have gradually been cleared; ② The current asset quality pressure mainly comes from the real estate industry, but the risk is manageable: stock risk exposure is concentrated on in-table loans, and the share of public real estate loans has also decreased, and the scale of other credit and non-credit businesses inside and outside the table has clearly declined; the scale of other credit and non-credit businesses inside and outside the table has dropped markedly; Minsheng Bank's risk exposure is sufficient, and the overall risk is manageable; ③ All asset quality indicators have improved, and the overall risk is manageable; All asset quality indicators have improved, and the overall risk is manageable Reduced risk, lower credit costs With the exercise of profitability recovery, future performance can be expected.

Profitability is weak, mainly due to low interest spreads. Minsheng Bank's ROE level is significantly lower than that of its peers, mainly the level of net interest spreads is low. Among them, ① asset side: Minsheng Bank invested more in infrastructure and manufacturing after 2020. Reduced risk appetite compounded by weak retail loan growth under the influence of the epidemic, caused Minsheng Bank's yield on interest-bearing assets to decline faster than peers; ② On the debt side:

Higher deposit costs have dragged down the cost ratio performance of interest-bearing debt. Fortunately, Minsheng Bank has changed its debt management philosophy, and further improvements in deposit costs can be expected in the future. Credit impairment losses on the expenditure side have declined markedly, and the tax exemption effect is obvious.

Risk warning: Potential drag on shareholders' operating risks; risks in some industries have been exposed beyond expectations.