Beijing's economy has moved from rapid development to a stage of high-quality development, and credit in specific fields is expected to maintain good growth. The compound growth rate of value added in Beijing's high-tech manufacturing industry reached 24.7% in 2017-2022, far higher than the national average growth rate of 14.1 pct. Under policy guidance, Beijing will maintain a high level of capital expenditure in the high-tech sector in the future, and loan investment in specific fields such as manufacturing and green is expected to maintain a high level of prosperity; from a residential perspective, Beijing ranks first in the country in terms of per capita savings, the deposit/loan ratio is at an all-time low, and the balance sheet is relatively healthy; the share of residents' short-term loans/GDP is 11.2%, which is lower than the national average of 15.2%, and there is still plenty of room for improvement.
Beijing's local market share continues to rise, speeding up the deployment of business in Jiangsu and Zhejiang regions. The Bank of Beijing is rooted in Beijing. The loan market share in the Beijing region is 8.2%, up nearly 2 percentage points from 2010. It has shown a gradual upward trend in the past ten years, demonstrating the company's core competitiveness in the mainland. The company is also the urban commercial bank with the largest number of offsite branches. In recent years, it has accelerated its business layout in economically developed provinces such as Jiangsu and Zhejiang. The compound growth rate of loans in Zhejiang and Jiangsu in 2019-2022 was 14.4% and 15% respectively, far higher than the 7.5% loan growth rate of the entire bank.
The basic market for public business is stable, and retail transformation has achieved remarkable results. Since 2006, the Bank of Beijing has been committed to promoting lightweight transformation, making it a development priority to increase the revenue scale and profit contribution of the retail business; for public business, it is committed to developing small and micro enterprise businesses, and has gradually explored the three major development directions of “technology finance,” “cultural finance,” and “green finance” adapted to Beijing's regional and national policies. In 2022, Bank of Beijing's personal finance business revenue accounted for 33.5%, up 11.2pct from 2020; at the end of 23Q2, retail loans accounted for 33.9% and retail deposits accounted for 28.2%, up 1.5 and 4.2 pcts respectively from the end of 2020.
The Bank of Beijing has the characteristics of “stable profits, low valuation, and high dividends”, and the rising market is expected to be further interpreted. Reason 1: In the context of declining risk-free returns, fixed income equity assets are expected to be favored by capital. Since 2020, the Bank of Beijing's dividend rate has remained high and stable at around 6%. Currently, the dividend rate is as high as 6.6%, ranking third among A-share listed banks, and the price difference with 10Y treasury bonds is 408 bps. Reason 2: PB is at a historically low level, and the “China Special Valuation” will provide a safety cushion for Bank of Beijing's PB valuation. Bank of Beijing currently has 0.4 times the PB (LF) of A-shares, which is in the 6.4% fraction since 2010. It is expected that the “China Special Valuation” policy logic may provide a safety cushion for the Bank of Beijing's PB valuation, and there is limited room for subsequent valuation levels to decline; reason 3: Driven by factors such as maintaining the intensity of table expansion and limited room for narrowing interest spreads, the Bank of Beijing's performance growth rate in 2024 will bottom out and rebound. In terms of volume, the Bank of Beijing's credit structure is in line with the country's key future development trends. Project reserves are abundant, and the 2024 expansion is expected to maintain strength; in terms of price, the company is expected to be impacted or relatively limited by the reduction in interest rates on urban investment debt and stock mortgage interest rates; the company's capital gap may expand in 2024, and the demand for stable profitability is strong.
Overall, we expect Bank of Beijing's revenue and profit growth in 2024 to improve compared to 2023.
Profit forecast, valuation and rating: Maintain the company's 2023-2025 EPS forecast at 1.22/1.30/1.37 yuan, and the current stock price corresponds to the PB valuation of 0.40/0.37/0.34 times, respectively. The Bank of Beijing has the characteristics of “stable profits, low valuation, and high dividends”. The rising market is expected to be further interpreted and raised to a “buy” rating.
Risk analysis: NIM narrows more than expected; large inventory risks are still unresolved; retail transformation falls short of expectations.