Basic Overview: Qilu Bank was founded in 1996 and is headquartered in Jinan, Shandong. The company's equity structure is balanced and stable, and the state-owned background is deep; the core management team is stable, the organizational hierarchy is flat, and the mechanism is flexible. In recent years, Qilu Bank has maintained rapid expansion, and its profit growth rate is in the first tier, and ROE continues to rise. Qilu Bank's ROE in 2023 was 12.9%, ranking 6th among commercial banks in listed cities.
We believe that the key for Qilu Bank to maintain high profit growth in the next phase is: (1) whether the scale can maintain a high increase and how much room the company has room to expand in the future; (2) whether net interest spreads can remain relatively stable; (3) whether asset quality can continue to improve and whether credit costs have room to decline.
Scale: Steady promotion of offsite layout and county finance, with support for rapid table expansion.
We believe that the size of Qilu Bank's assets is expected to remain high, and there is plenty of room for expansion. Mainly based on the following judgments: ① Regional economy: Shandong Province has a good economic base, low leverage ratio, rich resources for high-quality enterprises in the province, and relatively wealthy residents, providing good operating conditions for Qilu Bank. As a major industrial province, Shandong is in a period of acceleration in the transformation of old and new kinetic energy, and there are many growth points in market space and credit demand. ② Branch expansion: Qilu Bank is deeply involved in Jinan and is also speeding up the layout of offsite institutions. The market share of local and offsite branches in Jinan has been increasing in recent years. Currently, Qilu Bank still has planned branches that are about to open, and the rapid pace of branch expansion is expected to support a high increase in credit scale. ③ County finance: Since 2017, Qilu Bank has continued to increase investment in county business resources, and the growth rate of county deposits and loans has continued to be higher than that of the entire bank. As a major agricultural province, Shandong Province has a good economic development base. In recent years, the per capita disposable income growth rate of rural residents has continued to be higher than that of urban residents, and the consumer credit business of county residents has more room for development. ④ Capital base: Endogen+exogenous capital supplementation promotes continuous capital consolidation and can support the rapid expansion of the company's assets.
Net interest spread: Following the gradual decline in industry trends, the decline is expected to converge as debt costs improve. Qilu Bank's net interest spread is at the midstream level of the industry, mainly due to the company's low overall risk appetite, prudent credit investment, and low return on interest-bearing assets; however, debt-side deposits account for a high proportion of deposits, and the low cost advantage is obvious. Considering that the interest rate cut cycle is still not over, we expect that asset-side returns will still be under downward pressure; Qilu Bank's share of asset-side loans is relatively low, and it is expected that the downward pressure on interest rates will be partially hedged through structural optimization in the future. We believe that as deposits enter the repricing and interest rate reduction cycle, the subsequent reduction in debt costs will become the core force in mitigating the decline in interest spreads, and the decline in net interest spreads is expected to subside; Qilu Bank's term deposits account for a relatively high share and are expected to fully benefit.
Asset quality: Historical bad burdens are being cleared at an accelerated pace. There is room for future credit costs to fall. In recent years, Qilu Bank's historical bad burden has been digested at an accelerated pace. The criteria for determining bad defects have become stricter, and various asset quality indicators have entered an improvement cycle. At the same time, significant provision planning efforts were maintained, and provision coverage was gradually raised to a higher level. Judging from the asset quality of industry segments: ① The non-performing ratio of public servants continues to decline. Among them, the non-performing ratio of loans in the wholesale and retail sector has declined from a high level, and the non-performing ratio of loans in the manufacturing industry has also decreased; it is expected that risk exposure in the real estate industry will slow down and the risk will be manageable in the future. At the same time, considering that Qilu Bank's exposure to public real estate risk is small, and bad fluctuations have little impact on overall asset quality. ② The retail defect rate has increased since its low level. Mainly due to pressure on residents' income and fluctuations in housing prices. We believe that with the support of policies such as real estate inventory removal, as the economy continues to recover, credit risk in key industries is manageable, and overall asset quality has a stable foundation. In this context, there is room for the company's future credit costs to decline.
Profit forecast and investment suggestions: Qilu Bank's rapid expansion is supported, net interest spreads are relatively stable, asset quality has entered an improvement cycle, and credit costs have room for improvement. The above three points are expected to support the company's profit growth.
It is predicted that Qilu Bank's 2024-2026 net profit growth rates will be 16.1%, 15.1%, and 14.6%, respectively, and BVPS will be 8.06, 9.22, and 10.55 yuan/share, respectively. Qilu Bank's PB (MRQ) center in the past two years is about 0.66 times, which is about 0.73 times the average PB (MRQ) of commercial banks in listed cities. Considering Qilu Bank's rapid expansion rate, continuous improvement in asset quality, steady increase in profitability, and high growth potential, we gave the company a target PB of 0.72 times for 2024, corresponding to a reasonable share price of 5.8 yuan/share. The current stock price is 4.77 yuan (June 18, 2024), which corresponds to 0.6 times PB in 2024. The first coverage gives a “Recommended” rating.
Risk warning: Economic recovery and physical demand recovery fell short of expectations; credit scale expansion fell short of expectations; asset quality fluctuated sharply beyond expectations; industry net interest spreads narrowed sharply.