Key points of investment

24H1 Bank of Hangzhou's revenue increased 5.4% year on year, and the growth rate rebounded 1.9 pc from 24Q1. It is inferred that it was mainly due to better asset investment progress than expected, and the debt side benefited from manual interest rate compensation management in the previous period.

Performance Overview

Bank of Hangzhou 24H1 preliminary accounting (same below) revenue increased 5.4% year on year, and the growth rate rebounded 1.9 pc from month to month; net profit to mother increased 20.1% year on year, and the growth rate decreased by 1.0 pc from month to month 24Q1. The defect rate at the end of 24Q2 was flat at 0.76% compared to the end of 24Q1. The provision coverage rate was 545%, down 6pc from the end of 24Q1.

Revenue growth is picking up

Bank of Hangzhou 24H1's preliminary accounting revenue increased 5.4% year on year, and the growth rate rebounded 1.9 pc from 24Q1; net profit to mother increased 20.1% year over year, and the growth rate decreased 1.0 pc from 24Q1 month on month. The revenue growth rate was better than our previous expectations. The inference was mainly due to the fact that asset investment progress was better than expected, and the debt side gradually benefited from manual interest compensation management in the early stages.

Looking ahead to 2024, the Bank of Hangzhou's revenue growth rate is still under downward pressure. The main consideration is that the annual credit growth target has basically been achieved, and the scale growth rate may slow down; the downward pressure on interest spreads is still strong in an environment where demand for credit is weak.

Increased scale growth

At the end of 24Q2, preliminary accounting assets and loans increased 13.8% and 16.5% year-on-year, and the growth rate increased by 0.8 pc and 0.4 pc compared to the end of 24Q1. The increase in the speed of scale expansion is mainly due to the Bank of Hangzhou implementing an “early investment, early return” strategy. Looking ahead to the whole year, the growth rate of the Bank of Hangzhou is expected to slow down, mainly considering that it has basically achieved the annual credit growth target by the end of 24Q2. Bank of Hangzhou's loan balance at the end of 24Q2 increased by 94.2 billion yuan compared to the beginning of the year, while the planned increase in loan size for the full year of 2024 is around 100 billion yuan.

Defects remain stable

The preliminary accounting defect rate at the end of 24Q2 was 0.76%, the same as at the end of 24Q1; the preliminary accounting provision coverage rate at the end of 24Q2 was 545%, down 6 pc from the end of 24Q1, and the provision coverage rate is still at a very high level among listed banks.

Profit forecasting and valuation

Bank of Hangzhou's net profit is expected to increase 20.27%/19.12%/17.48% year-on-year in 2024-2026, corresponding to BPS 18.29/21.05/24.29 yuan. The target price is 15.54 yuan/share, corresponding to the 2024 PB of 0.85 times. As of the close of July 25, 2024, the current price is 13.05 yuan/share. The current price space is 19%, maintaining a “buy” rating.

Risk warning: The macroeconomy has stalled, and bad effects have been greatly exposed.