Core views:

Qilu Bank disclosed the 2024 semi-annual performance report. Our comments are as follows: 24H1 revenue increased 5.53% year on year, and the growth rate was the same as 24Q1; net profit to mother increased 16.98% year on year, up 1.5PCT from 24Q1; 24Q2 revenue and net profit to mother increased 5.53% and 17.99% year on year, respectively. Net profit growth rebounded from quarter to quarter. It is expected that provisions will continue to provide effective support for performance growth.

Capital liabilities have been growing steadily, and deposit growth has picked up month-on-month. On the asset side, 24H1's total assets and total loans increased 17.66% and 15.31%, respectively. Compared with 24Q1 changes of -0.5PCT and -0.5PCT, respectively, the loan growth rate declined somewhat, but it was still high, and credit demand was not weak under the old and new kinetic energy conversion policies.

Structurally, loans at the end of 24H1 accounted for 50.4% of total assets, down 1.0 PCT and 0.4 PCT respectively from the end of 23H1/24Q1. On the one hand, in an environment where interest rates on long-term bonds were declining, the company may have increased its bond allocation; on the other hand, under the influence of manual interest rates in Q2, the stability of industry deposits was weak, and active debt expansion corresponded to the size of the company's interindustry assets. On the debt side, total debt and total deposits of 24H1 increased 17.56% and 9.11% year-on-year respectively. The growth rates were -0.4 PCT and +2.3 PCT respectively at the end of 24Q1. The deposit growth rate rebounded markedly from month to month, but it was still far lower than the loan growth rate. The total debt growth rate was not low, indicating that the company's active debt was growing faster. Structurally, total deposits accounted for 70.1% of total debt, up 0.8 PCT from month to month.

Asset quality improved, provision coverage increased. The company's non-performing loan ratio at the end of 24H1 was 1.24%, down 1 bps from the end of 24Q1 and down 3 bps; the 24H1 end provision coverage rate was 309.25%, up 4.45PCT from the previous month, up 7.19PCT from the previous year, up 3.83% from the end of 24H1, and 0.02pct higher than the end of 24Q1. The 24H1 loan provision was approximately $12.526 billion, an increase of 0.438 billion yuan in the 24Q2 quarter. On the one hand, the company actively deals with poor inventory and continues to optimize the credit structure; on the other hand, it strengthens risk management mechanisms, such as implementing a risk director assignment system, fully implementing the job exchange rotation system and the “Four Eyes Principle”, and continuously implementing the “double list” management mechanism to prevent risk businesses in key areas from falling back and forth, taking more measures, and continuously improving asset quality. While net profit to mother remains high, risk compensation capabilities have been further consolidated.

Profit forecasting and investment suggestions: The company is based in Shandong and is rooted in Jinan. It is strategically deeply involved in the county area and inclusiveness, insists on high-quality development, continuous improvement in asset quality, and has consolidated safety pads, and its performance over the past year has been significantly better than the overall level of commercial banks in listed cities. Against the backdrop of major economic provinces stirring up momentum and Shandong Province's new and old kinetic energy conversion policies, it is expected that subsequent credit demand will remain high. Under the accelerated expansion of scale, demand for debt-for-equity swaps may increase. Performance has great potential to be released, and growth is prominent. The company's net profit growth rate for 24/25 is 15.6%/12.5%, EPS is 0.99/1.12 yuan/share, respectively. The current stock price is 4.64X/4.10X for 24/25 PE, respectively, and 0.58X/0.51X for 24/25 PB respectively. Maintain the company's reasonable value of 5.92 yuan/share, corresponding to the 24-year PB valuation of about 0.75X, and maintain 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.