There are three core recommendation logic: one is steady asset quality: Shanghai agricultural merchants are rooted in Shanghai, deeply involved in the suburbs of Shanghai, have stable long-term operation, sufficient provision, guaranteed quality of core assets such as real estate and retail, and strong cyclical resistance; second, incremental security for public business: benefiting from major projects such as Shanghai Science and Technology Innovation Center, urban village renovation, industrial upgrading, etc., and combining their own first-mover and market share advantages, and simultaneously make small efforts to diversify and guarantee incremental growth for the public; the third is the release of retail momentum: this round of retail transformation is strong, and the retail industry is fully protected. Upgraded, and the customer base is large, high quality and high potential, along with zero loans, wealth, liabilities, and customer base With the efforts of many parties, retail momentum is expected to be unleashed. The company's stock is steady and growth is guaranteed; it is expected to cross the cycle and support continued performance. It is expected to be an investment target with sustainable high dividends.

Company Overview: The company has a long business history, and its shares are mainly owned by Shanghai; the executives are young and deeply involved in the Shanghai financial system; the per capita salary and income generation are high, and the talent is highly attractive. Financial Overview: Revenue and profit maintain the upstream level of the industry; the asset side structure is optimized year by year, the debt side accounts for a high share of current life and both public and private activity have maintained positive growth, and the debt side has a cost advantage; the core tier 1 capital adequacy ratio ranks first among agricultural and commercial enterprises in listed cities, and the dividend rate remains 30% +.

Core recommendation logic 1: Asset quality is stable, and key risks are manageable. 1. Comprehensive indicators: Asset quality remains excellent, and safety margins remain high. The defect rate is kept within 1%, and the net generation pressure of defects is small; the margin of safety is high, and the provision is maintained at around 400%. 2. Real estate chain risk: Inventory risk is low, supported by the Shanghai housing market, collateral is more valuable, and the real estate chain can control public retail risks. The non-performing rate for public real estate is at a low level in the industry, and the share of real estate loans is falling year by year; the Shanghai housing market is relatively strong, and collateral is more valuable; according to guarantee methods, mortgages account for half of the country, and their non-performing rate has dropped by 5 bps in the past three years; and the non-performing rate of inclusive small and micro loans remains low.

3. Urban investment risk: Shanghai's hidden debt has basically been cleared, its financial strength is strong, and the exposure to agriculture in Shanghai is small, and the risk is manageable.

4. Retail risk: Low defects and active pressure to reduce the size of credit cards.

Core recommendation logic 2: Relying on the Shanghai Science and Technology Innovation Center and major projects to provide a steady increase in public business. 1. Science and innovation: Regional beta+ has its own advantages, science and innovation finance still has great potential. Current status of agricultural science and innovation finance in Shanghai: It has been deeply cultivated for a long time, the scale has increased steadily, and the market share is high; regional beta: Shanghai is positioned as an international science and technology innovation center, and the target for science and technology loans in Shanghai will exceed trillion dollars in 2025; Shanghai Agriculture's own advantages: early layout+sufficient strategic attention+sufficient resource support+advanced service system. 2. Urban villages: The scale of urban village renovation in Shanghai is expected to exceed 400 billion dollars. Shanghai farmers have a natural advantage on the main battleground in the suburbs. It is estimated that the total investment in Shanghai's urban villages is about 400 billion dollars, and the suburbs are the main battleground for farmers in Shanghai. 3. Industrial upgrading: The total investment is expected to exceed 220 billion dollars in three years. Shanghai Agriculture was selected as the first batch of service agencies, and the three-year credit was granted over 80 billion dollars. Shanghai has accelerated industrial upgrading, with 30 million square meters in three years, with an estimated total investment of over 220 billion dollars.

Core recommendation logic 3: The retail line is fully transformed and upgraded, and business momentum can be expected to be released. 1. Top-level retail design: strong transformation+comprehensive line upgrade+deep network transformation. This round of transformation has the strongest intensity, the widest range of levels, and the richest content; the number of first-level retail departments has been increased from 2 to 4, and the lines have been fully upgraded; network transformation+ “heart home”, the potential of outlets is expected to continue to be unleashed. 2. Retail customer base: Large in scale and potential, the five core customer groups are expected to further unleash momentum. The basic retail customer base is nearly 22 million, with a large base, high upper limit, and potential. The overall customer base management framework was formed: the five core customer groups and three corresponding customer groups were established; the exclusive trade union card issuance exceeded 5.7 million, and the social security card share was 12% +; Shanghai had a high degree of aging and actively promoted pension finance; the Ministry of Finance and Private Affairs was upgraded to the first level of the head office, and the wealth customer base grew steadily. 3. Non-mortgage loans: Self-employed+cooperative loans are two-wheel drive to form volume and price support for retail assets. Self-operated “Xine Loan” focuses on “value customers”, driving individual loan yields to rise instead of falling, and achieve volume and price support. 4. There is space for wealth management: The scale of financial management and non-commodity management ranks first among agricultural businesses. Custody licenses have been approved, financial management licenses can be expected, opening up space for intermediation and science and innovation services.

Investment advice: We expect 2023-2025 revenue to increase 3.5%, 3.6%, and 3.7% year-on-year respectively, and net profit to increase 10.4%, 6.6%, and 6%, respectively. The NPL ratio is expected to fluctuate slightly within 1%. Company 2023E, 2024E, 2025E PB 0.61X/0.56X/0.51X; PE 5.44X/5.12X/4.83X. The Shanghai Agricultural Commercial Bank is rooted in Shanghai, spans the Yangtze River Delta, and has an excellent business location; it has sufficient capital and stable asset quality. In recent years, science and innovation finance has gradually gained strength, retail transformation is beginning to show results, and deep participation in major Shanghai projects and management sub-licenses are expected to gradually be implemented, which is expected to open up space for performance growth. Maintain an “Overweight” rating.

Risk warning: First, the risk that the economic downturn exceeds expectations: Bank operations are highly related to macroeconomics. If the economic downturn exceeds expectations, it may cause the company's performance to fall short of expectations. Second, there is a risk that public data used in research reports may be delayed or not updated in a timely manner: some data in research reports comes from company regular reports and other public data, and there is a risk that information will be delayed or not updated in a timely manner. The third is the risk of measurement bias: The estimates of scale growth and profit forecasting covered in this report all contain certain assumptions, and there is a certain risk of measurement bias.