Matters:

On the evening of July 17, Rui Fung Bank disclosed its 2024 semi-annual results report. In the first half of the year, the company achieved operating income of 2.174 billion yuan, up 14.9% year on year, down 0.4 pct from 1Q24; operating profit of 0.745 billion yuan, up 6.13% year on year, down 8.1 pct year on year from 1Q24; net profit attributable to shareholders of listed companies was 0.843 billion yuan, up 15.5% year on year.

Commentary:

The revenue growth rate declined slightly in the second quarter, and is expected to remain at a high level in the same industry. The decline in revenue is expected to be mainly affected by the slowdown in 2Q24 and other marginal declines in the growth rate of non-interest income, and the decline in interest spreads may be narrower than in the first quarter. 2Q24's single-quarter revenue increased 14.5% year over year, down 0.9 pct from month to month. It is expected mainly due to the slowdown in scale growth in the second quarter, the decline in loan growth by 3.7 pct to 8.9%, and the good performance of the bond market in the first quarter boosted other non-interest income. The growth rate of other non-interest income in the second quarter or a marginal slowdown in the second quarter. The decline in interest spreads is expected to narrow in the second quarter. First, loan repricing was concentrated in the first quarter, and loan pricing remained unchanged, and loan pricing declined or narrowed; second, 1Q24 credit had a good start, and interbank loan competition was fierce, and there will also be concessions in pricing. In the second quarter, loan pricing may be stable due to a slowdown in scale growth; third, reducing deposit listing interest rates and lowering medium- to long-term deposits will help stabilize interest spreads by reducing debt-side costs.

Net profit to mother increased by more than 15% in the first half of the year, mainly due to stable and improving asset quality. Net profit attributable to mother increased 15.5% year on year in the first half of the year. The year-on-year growth rate was 0.7 pct higher than 1Q24. Mainly due to Rui Fung Bank's excellent risk control capabilities, the non-performing rate remained flat at 0.97% month-on-month in the second quarter, and the provision coverage rate was +19pct to 323.8% month-on-month.

The textile industry's financing season is low, demand for credit weakens, and the growth rate is expected to pick up during the next peak season. As of the end of June 2024, total assets were 210.395 billion yuan, up 10.8% year on year, and the growth rate decreased by 3 pcts; total loans were 121.696 billion yuan, up 8.9% year on year. Among them, new loans in Q1 and Q2 were 9.109 and -0.795 billion yuan respectively; total deposit was 159.16 billion yuan, up 11.5% year on year. The negative increase in loans in the second quarter is, on the one hand, from an overall perspective, physical credit demand is weak. Combined with the second quarter being a low season for textile credit demand, the third quarter is a winter clothing sales period, and credit demand is expected to pick up; on the other hand, judging from the loan structure, the company or pressure drop on some notes, and early mortgage repayments are still hampering retail loans. Subsequent increases in personal business loans may fill the gap between mortgages and off-site retail loans.

Asset quality remained stable, and provision coverage increased month-on-month. The 2Q24 non-performing loan ratio remained flat at 0.97% month-on-month, provision coverage ratio was +19pct to 323.8% month-on-month; loan ratio was +18bp to 3.14% month-on-month. It is expected that the asset quality of the company's small and micro enterprise loans and traditional personal business loans will remain stable, the bad net generation rate of the micro-finance business will continue to improve, and some micro-finance non-performing loans were written off in the first quarter. The quality of subsequent assets is expected to remain stable, moderate and positive, and the annual performance may continue to lead the industry.

Investment advice: Ruifeng Bank's revenue and profit growth rate continued to grow at a high rate in the second quarter. It is expected to remain at the leading level in the industry. Asset quality is stable and improving, and the annual performance is expected to continue to grow by more than 10%. In the context of breaking down the “scale complex” in the banking industry as a whole and focusing on “excellent quantity and quality”, Ruifeng Bank's volume and price are still at an excellent level. In the future, it is still expected to benefit from: 1) the rapidly growing export economy in Keqiao District and Yuecheng District of Shaoxing City, where credit demand is still strong; 2) loan structure optimization, the impact of early mortgage repayment has gradually subsided, and the consumer loan business has maintained relatively rapid growth; 3) Offsite interbank equity investment, which has already invested in Yongkang and Cangnan Agricultural Commercial Bank to increase other non-interest income Increase ROE.

Due to the low and high growth rate of other non-interest income last year, the growth rate of other non-interest income may slow down after rising in the first quarter. Combined with the current macroeconomic environment, we maintain our previous forecast. Combined with the current macroeconomic environment, we expect the company's 2024-2026 revenue growth rate to be 6.71%/10.57%/14.48%, and the 2024-2026 net profit growth rate is 11.07%/11.36%/13.46%. The current valuation is only 0.54x24pb. We maintain a 24-year target PB of 0.72X, a corresponding target price of 6.6 yuan, and maintain a “recommended” rating.

Risk warning. Bank interest spreads are under further pressure due to insufficient economic growth momentum. Bank credit investment fell short of expectations.