Core views
Two inflection points of Zheshang Bank were established in 2023, establishing a firm bottom line, and credit costs are expected to fall to stabilize performance. At the corporate governance level, equity relationships have been straightened out, a new leadership team has been established, and capital replenishment has been put in place; at the risk level, disposal of off-balance sheet bad returns is nearing its end, and asset impairment losses are expected to decrease starting in 2024. Looking forward to the future, two major driving forces helped it achieve positive revenue growth leading the stock bank. First, take “deep cultivation of Zhejiang” as the primary strategy to increase Zhejiang's market share. Second, secure assets that are weak and sensitive to the economic cycle, and build the ability to cross the cycle.
summary
Inflection point 1: Improved corporate governance, and capital replenishment in place. The problematic shareholders of Zheshang Bank were settled, and the equity relationship was officially straightened out. Zhejiang Financial Holdings was the largest shareholder. The formal establishment of a new leadership team is conducive to long-term adherence to the correct strategy. The allotment of shares was completed in 2023, adding nearly RMB 12.5 billion in capital to guarantee scale expansion and risk management.
Inflection point 2: The disposal of off-balance sheets is nearing its end, and asset quality has reached a new level. It is expected that Zheshang Bank will complete the off-balance sheet in 2023, and the pressure on the provision plan will be greatly relieved. On the real estate side, risk exposure has gradually been reduced, and key projects have been fully planned.
In terms of urban investment, the CITI exposure of the 12 chemical debt provinces is about 15 billion dollars, and the extension of interest rate cuts will be less affected. Over the past few years, high credit costs have always been the biggest constraint on the release of profits of Zheshang Bank. As stock pressure clears up, it is expected that credit costs will gradually decline, protecting the further release of subsequent profits.
New Momentum 1: Increase market share with “deepening Zhejiang” as the primary strategy. Zhejiang Province has an active economy, rich residents, and strong demand for credit. It is a fertile ground for all bank businesses. After the equity relationship returned to the province, as the only stock bank headquartered in Zhejiang, Zheshang Bank adopted “deep cultivation in Zhejiang” as its primary strategy, insisted on deepening the government, deepening the industry, and deepening customer cultivation, and adjusting strategies and practices according to local conditions, providing important support for the high-quality growth of the bank's credit scale.
New Momentum 2: Build strong assets that are weak and sensitive to the economic cycle, and build the ability to cross the cycle. 1) Adhere to small diversification: microfinance, supply chain finance, and retail credit create small diversified assets; 2) Use CSA's total customer service volume to guide revenue growth: big investment banks and big wealth set sail; 3) Weak and sensitive industries in the economic cycle: increase the share of assets in key industries represented by science and innovation finance.
Investment advice: The two inflection points establish a firm operating bottom line, and credit cost optimization supports performance growth. Two new driving forces help high-quality development and achieve industry-leading revenue growth.
We expect Zheshang Bank's revenue to maintain positive growth in 23-25, with a profit growth rate close to double digits. It maintains a buying rating, and is included in the bottom-inflection point first promotion group, which is a key recommendation.