On the evening of January 19, 2024, Qilu Bank disclosed its 2023 performance report. In 2023, it achieved operating income of 11.95 billion yuan, YoY +8.03%; net profit to mother of 4.23 billion yuan, YoY +18.02%; weighted average ROE of 12.90%. By the end of 2023, the asset size was 605 billion yuan, the non-performing loan ratio was 1.26%, and the provision coverage rate was 303.58%.

1. Profit growth rate increased and ROE increased.

Revenue growth in 2023 was 8.0%, a slight decrease of 0.2 percentage points from 3Q23. The price was compensated by volume, and the 22Q4 base was relatively low, and the revenue growth rate remained stable; net profit growth rate to mother was 18.0%, up 1.8 percentage points from 3Q23. The profit growth rate bucked the trend, or the strength of the reserve plan weakened due to improved asset quality. Thanks to high profit growth, the weighted average ROE in 2023 was 12.90%, up 0.98 percentage points from the previous year.

2. The asset scale reached 600 billion and maintained a relatively rapid growth rate.

As of the end of 2023, total assets, loans, and deposit amounts were $6050, 3002, and 398.1 billion yuan, respectively, up 19.6%, 16.7%, and 13.9% year-on-year, respectively. Q4 Assets increased by 36.5 billion dollars in a single quarter, with loans growing by 6.8 billion dollars. The Q4 debt-side size increased by 32.5 billion dollars, mainly contributed by interbank deposits. Among them, the deposit size decreased by 6 billion yuan, and the net increase in the size of interbank deposits was 27.4 billion yuan (39.3 billion dollars issued in Q4, 11.9 billion dollars due).

3. Asset quality is improving, and capital adequacy ratio may increase.

Asset quality continues to improve. By the end of 2023, the non-performing loan ratio was 1.26%, the same as 23Q3, down 3BP from the end of 2022; the provision coverage rate was 303.58%, down 10.31 percentage points from 23Q3, but remained at a high level; the loan ratio was 3.83%, down 13 BP from 23Q3, up 20 BP from the end of 2022.

Thanks to high earnings growth, capital adequacy ratio increased slightly. As of the end of September 2023, the core Tier 1 capital adequacy ratio, and Tier 1 capital adequacy ratio were 9.73%/11.43%/14.45% respectively, all up from 23H1, and have strong endogenous capital capacity. The 23Q4 company issued 2 billion perpetual bonds. Convertible bonds continued to be converted to shares (8.7% share conversion rate at the end of 23), and the capital adequacy ratio may increase. According to the company's announcement, with the implementation of the new capital regulations in 2024, Qilu Bank will apply the first level of supervision plan. According to estimates, the capital adequacy ratio will increase slightly.

4. Shareholders and executives increase their holdings, demonstrating confidence in the company's development.

According to the company's announcement, in order to stabilize stock prices, the Commonwealth Bank of Australia and other shareholders holding 5% or more increased their holdings of the company's shares by 13.84 million shares, accounting for 0.29% of the total share capital, and increased their holdings by 54.97 million yuan. Furthermore, based on confidence in the company's future development, the chairman, president and other executives collectively increased their holdings by 330,000 shares, accounting for 0.01% of the total share capital.

Investment advice: Make up the price with volume to increase profit growth. The Shandong region where Qilu Bank is located has a well-developed economy, and the results of industrial transformation have been remarkable. The asset size has maintained a relatively rapid growth rate, the profit growth rate has bucked the trend, and the quality of assets continues to improve. We maintain our “gain” rating.

Risk warning: Interest spreads have narrowed; the economy is declining, and asset quality has deteriorated.