Build solid fundamentals and save new momentum

Profits are stable, moderate and positive, and dividend advantages are outstanding. They are optimistic about investment opportunities for the Chongqing Agricultural Commercial Bank. The regional economy is recovering and the stock burden is cleared, and the profit of the Chongqing Agricultural Commercial Bank is expected to be steady and improving. The company's dividend rate is high, the dividend advantage is prominent, and the allocation is cost-effective. We forecast EPS of 1.02 yuan/1.08 yuan/1.17 yuan in 2024-2026, and a BVPS of 10.92 yuan in 24, corresponding to 0.47/0.33 times the PBX for A/H shares. Compared to the company's 24-year Wind, A/H shares agreed to expect PB 0.55/0.23 times. The company's county layout advantage was stable, and retail and BBC ecological strategies were beginning to show results. A/H shares were given 24-year target PB0.58/0.45 times, target price 6.33 yuan/5.26 HKD. A shares maintained an “increase” rating, and H shares maintained a “buy” rating.

The recovery of the regional economy supports steady table expansion

The new leadership team of Chongqing took office and set positive development goals, and national-level strategic support laid the foundation for steady expansion. Chongqing's economy is gradually stabilizing, and industrial transformation is beginning to bear fruit. The target is to exceed 4 trillion yuan in GDP by 2027. Local governments are actively promoting debt conversion, and the debt pressure on districts and counties has gradually eased. The construction of the Chengdu-Chongqing Shuangcheng Economic Zone has been upgraded to a national strategy. It is planned to invest 422.1 billion yuan in 2024. The construction of key projects will accelerate, which is expected to drive demand for regional infrastructure credit. On the industrial side, the “33618” industrial cluster clearly creates 3 trillion-level industrial clusters to help accelerate the transformation of the manufacturing industry, which is expected to greatly drive economic growth and promote credit investment in related industries.

In-depth county layout, stable debt advantage

Chongqing Agricultural Commercial Bank has both size+network+geographical advantages. The competitiveness of the county area is outstanding, and the low cost debt advantage is remarkable. As of June, the Chongqing Agricultural Commercial Bank had 1,745 branches in Chongqing, higher than all major banks and stock banks; more than 80% of the branches were distributed in the county area, constituting misplaced competition with the local Bank of Chongqing and the Three Gorges Bank. At the end of 2023, 72% and 49% of the savings and loans of the Chongqing Agricultural Commercial Bank were distributed in the county area, and the share of cities in the county area reached 31% and 22% respectively. The Chongqing Agricultural Commercial Bank has a stable customer base, and the advantage of low cost debt is remarkable. The 2023 interest-bearing debt cost ratio and deposit cost ratio were 2.03% and 1.88% respectively, all the lowest among listed urban agricultural commercial banks; the average cost ratio of personal time deposits was 2.39%, which is significantly lower than other urban agricultural commercial banks.

Asset quality is improving, and dividend advantages are outstanding

The Chongqing Agricultural Commercial Bank's stock has been cleared of large amounts of risk, risk appetite is prudent, and asset quality is stable and improving. The historical burden of the Chongqing Agricultural Commercial Bank has been cleared, and various indicators have continued to improve. The company's defect rate and attention rate continued to decline. At the end of 24Q1, they were 1.19% and 1.14%, respectively; provision coverage continued to increase, to 362% in 24Q1. Since it has the advantage of low cost debt, the risk appetite for asset-side investment is low. It is expected that the pressure of bad new generation will be manageable, and there is still room for provisions to feed back profits. We believe that the profit of the Chongqing Agricultural Commercial Bank is expected to be stable, moderate and positive. The company's dividend rate is stable at a high level of around 30%, the dividend advantage is outstanding (as of 07/10, the company's dividend rate is 5.60% for 23 years, ranked 11th among listed banks), the valuation is at a low level of listed banks (0.50 times the company's PB_LF as of 07/10), high dividend+undervaluation, and outstanding allocation and cost performance.

Risk warning: Economic recovery fell short of expectations, and the deterioration in asset quality exceeded expectations.