Consolidate the basic market and cultivate high quality
The advantages of stable fundamentals+high dividends are highlighted, and I am optimistic about Bank of Chengdu's investment opportunities. The Bank of Chengdu has the highest growth rate+debt costs are expected to be optimized+convertible debt-for-equity swaps are expected to supplement capital. The 24E dividend ratio is estimated to rank 2nd among listed banks, with outstanding characteristics of high dividends. With the strategic position of the Chengdu-Chongqing economic circle improving, the regional economic space is broad, the Bank of Chengdu operates steadily and far-reaching, and has solid fundamentals. We expect the company's 24-26 EPS to be 3.41/3.81/4.25 yuan, and 24-year BVPS 19.50 yuan, corresponding to 0.78 times PB. Comparatively, the company's 24-year Wind unanimously expected an average PB value of 0.60 times. We believe that the company's operating quality is solid, and the fundamentals are stable in the first tier of the industry. The valuation is expected to target the first tier, giving the 24-year target PB1.05 times the target price and 20.48 yuan, maintaining a “buy” rating.
Regional positioning has been upgraded, and the momentum of table expansion is strong
Chengdu's regional economic space is broad, supporting the growth of local banks. The year-on-year growth rate of Bank of Chengdu loans has remained in the top 4 comparable to that of the industry since 2019. The strategic position of the Chengdu-Chongqing economic circle has improved, and the number and investment amount of major construction projects continued to increase dramatically. The total investment amount of projects increased from 1.57 trillion yuan in 21 to 3.25 trillion yuan in 23, which is expected to continue to drive demand for credit. Bank of Chengdu has distinct administrative and financial characteristics and outstanding advantages, and has formed specialized and systematic competitive barriers. The current closing price is only 14% (6/13) of the increase required from the price line for strong redemption of convertible bonds. If all of the remaining 5.2 billion yuan of convertible bonds were converted into shares, according to static estimates from 24Q1 data, the recharge rate could be increased by 0.64 pct, which is a powerful supplement to capital ammunition.
The debt advantage is stable, and debt conversion disturbances are manageable
Consolidate fundamentals and establish a virtuous asset-liability cycle centered on low-cost debt. The Bank of Chengdu has long adhered to “stable deposit processing”, maintained the advantage of low cost over public deposits, and developed retail deposits through a broad network layout. At the end of 23, demand deposits accounted for 54% of public deposits. The average cost ratio of deposits was only 2.23%, and the debt-side cost advantage was remarkable. As dividends are gradually released as deposit listing interest rates are lowered, debt-side costs still have room to decline, easing downward pressure on asset-side pricing. Previously, the market was concerned that asset side pricing would be under pressure due to CITI bonds, but actual fixed bonds adopted a “one household, one discussion” negotiation model based on the market-based principle, and the disturbance on asset-side pricing was less than expected.
The two lows are stable and far-reaching, and the dividend advantage is prominent
The asset quality is excellent, medium and positive, and has both solid fundamentals and high dividends. After years of hard work, it has formed a smooth link of low cost liabilities - low risk investment preferences on the asset side - excellent asset quality, and asset quality has long been in the first tier of listed banks. The bad generation rate continued to decline after 2018. The bad generation rate in '23 was close to 0, and the coverage rate of bad + concern provision reached 315%, ranking 2nd in the industry. Real estate policies continue to gain strength and the trend of urban investment bonds is clear, strengthening expectations for improving asset quality. The cash dividend ratio for '23 is 30%. Assuming that the dividend ratio for '24 is the same as in '23, the 24E dividend ratio is estimated to rank 2nd among listed banks. The advantage of high dividends is prominent.
Risk warning: Economic recovery fell short of expectations, and the deterioration in asset quality exceeded expectations.