Core views:

Qilu Bank is deeply involved in major economic provinces. Asset quality continues to improve, safety pads are being consolidated, and its performance over the past year has been clearly better than the overall level of commercial banks in listed cities. At the same time, it is expected that subsequent credit demand will remain high, scale expansion will accelerate, and demand for debt-for-equity conversion will increase, and performance has great potential to be released. Investors are advised to pay active attention against the background of major economic provinces and the favorable policies for the conversion of old and new kinetic energy in Shandong Province.

It is rooted in a major economic province, and its policies are very favorable. Qilu Bank is headquartered in Jinan City, Shandong Province. Shandong Province has an excellent geographical location. It is a province with a large population, large resources, and a large economy in China. At the same time, the dependence on credit debt in Shandong Province is relatively low, and the credit growth rate is higher than the national level. Among them, small and micro loans have maintained a high growth rate of 15% or more for a long time, providing a foundation for credit expansion of local financial institutions. As the capital of Shandong Province and a pioneering area for the conversion of old and new kinetic energy, Jinan City enjoys multiple favorable policies. In particular, the strategic plan for the conversion of old and new kinetic energy spans 15 years, covering various fields such as ecological protection in the Yellow River Basin, the conversion of old and new kinetic energy, and a green, smart and livable new city. It is expected to continue to create credit demand in various fields such as green credit, equipment upgrading, clean energy, rail transit, and science and innovation finance.

Deeply cultivate the county area and improve inclusiveness, quality and efficiency. Qilu Bank officially incorporated county finance into its strategic plan in 2017. In order to expand the county's financial business more effectively, in addition to maintaining high priority in terms of departments and personnel settings, the company also accelerated the layout of county outlets and established inclusive finance centers in county branches to give full play to the effects of urban and rural linkage, accelerate the decline in financial services, and focus on solving the shortcomings and real problems of county finance. The contribution to the county's financial business continues to increase. In terms of inclusive finance, we are active implementers of major policies to support private enterprises, small and micro enterprises, innovation and entrepreneurship. In response to the problems of difficult, expensive, and slow financing for small and micro enterprises, we have made full use of various small and micro support policies to innovate bank-backed cooperation models to form a unique inclusive finance system, and the growth rate of inclusive small and micro loans has remained high.

The ROE level is superior to that of urban commercial banks in the same region, mainly due to ① effective debt cost management; ② the net income contribution of handling fees and commissions is higher than the average level of urban commercial banks; ③ adhering to the principle of “diligent and thrifty business” and vigorously promoting centralized procurement and green energy-saving operations, and the cost-to-revenue ratio is relatively lower. In addition, the company's credit costs are higher than the average of comparable peers, but asset quality has improved markedly in recent years, the broad provision coverage rate has also been strengthened, and the PB valuation is significantly lower than the current nominal PB after the overprovision is refunded. If asset quality remains stable, there is room for future ROE and valuation improvements.

Profit forecast and investment advice: The net profit growth rate for 24/25 is expected to be 10.4%/11.6%, EPS is 0.94/1.05 yuan/share, respectively. The current stock price is 5.36X/4.77X for 24/25 PE points 75, and 0.64X/0.57X for 24/25 PB, respectively. Considering the gradual improvement of the company's fundamentals, high potential for performance release, and outstanding growth, the company was given a 24-year PB valuation of about 0.75X, corresponding to a reasonable value of 5.92 yuan/share, giving it a “buy” rating.

Risk warning: macroeconomic downturn; shareholders' holdings reduced short-term stock prices; interest rates fluctuated sharply; asset risk exposure in counties exceeded expectations; competition for regional deposits intensified.