Incidents:

On July 25, the Bank of Hangzhou released its 2024 semi-annual performance report. In the first half of the year, it achieved operating income of 19.34 billion yuan, an increase of 5.4% over the previous year, and net profit to mother of nearly 10 billion yuan, an increase of 20.1% over the previous year. The weighted average return on net assets (annualized) was 19.48%, up 0.82pct year-on-year.

Comment:

The revenue growth rate increased 1.9 pct over 1Q, the profit growth rate was stable above 20%, and the fundamentals were resilient. The Bank of Hangzhou's revenue and net profit growth rates for the first half of the year were 5.4% and 20.1%, respectively, with year-on-year changes of 1.9 and -1.1 pct from 24Q1; 2Q single-quarter revenue and net profit to mother grew 7.3% and 19% year-on-year, and 3.8 and -2.1 pct, respectively, from 24Q1. It is expected that the intensity of table expansion will be steady and steady, the marginal relief of narrowing interest spreads, and the resilience of net other non-interest income will all support 2Q revenue.

The intensity of the bank expansion is progressing steadily, and credit investment is mainly directed at the princess. At the end of 24Q2, the Bank of Hangzhou's total assets, loans, and non-credit assets grew by 13.8%, 16.5%, and 11.7%, respectively, up 0.8, 0.4, and 1 pct from the end of the previous quarter. New loans increased by 30.6 billion dollars in a single quarter in 2Q, an increase of 7 billion over the previous year. At the end of 24Q2, loans accounted for 45.4% of total assets, the same as at the end of the previous quarter. According to the June financial data disclosed by the central bank, the loan growth rate at the end of 2Q fell 0.8 pct from the end of the previous quarter under the influence of multiple factors such as insufficient demand for effective credit and “scale circumstances” where policy guidance downplayed credit. However, the Bank of Hangzhou has benefited from advantages such as deep cultivation in developed economic circles and a solid customer base. The pace of bank expansion has been steady and progressive, reflecting its strong ability to invest in credit. The company's credit investment in the first half of the year was mainly for public credit, and retail and small and micro loans maintained a slight increase. The company said it expects to increase loan investment for small and micro enterprises and manufacturing enterprises in the second half of the year.

The deposit growth rate increased by 2.7 pct compared to the end of 1Q, and deposit cost control gradually became effective. At the end of 24Q2, the Bank of Hangzhou's total debt, deposits, and market debt grew by 13.2%, 13.7%, and 12.5% respectively, with changes of 0.2, 2.7, and -4 pct, respectively, from the end of the previous quarter. Deposits increased by 38 billion in a single quarter in 2Q, an increase of 28.4 billion over the same period last year under a low base. The deposit-to-loan ratio at the end of the second quarter was 78.3%, roughly the same as at the end of the previous quarter, with a slight increase of 0.1 pct. According to the company's disclosure, with the reduction in market interest rates and the standardization of “manual interest” deposits, deposit interest rates have gradually declined.

The non-performing loan ratio remained stable at 0.76%, and the provision coverage rate remained high. At the end of 24Q2, the Bank of Hangzhou had a non-performing loan ratio of 0.76%. Since 23Q1, the non-performing loan ratio has remained stable at 0.76%; at the end of 24Q2, the non-performing loan balance was 6.85 billion billion, an increase of 0.22 billion over the end of the previous quarter. In terms of retail risk, according to the company's disclosure, the 2Q consumer loan balance maintained steady growth. At the same time, the negative consumer loan trend remained stable. By the end of May, the company's consumer loan bad balance and non-performing rate had decreased slightly compared to the beginning of the year.

At the end of 24Q2, the Bank of Hangzhou had a loan loss reserve balance of 37.35 billion yuan, an increase of 0.86 billion yuan over the end of the previous quarter; the loan ratio was 4.14%, a slight decrease of 6 bps from the end of the previous quarter; the provision coverage rate was 545.2%, down 6.1 pct from the end of the previous quarter. The estimated provision depth is still among the top listed banks.

Profit forecasting, valuation and ratings. The company is based in Hangzhou and is deeply involved in Zhejiang, and its branches are mainly distributed in developed economic circles such as the Yangtze River Delta and Pearl River Delta. Since 2024, the company has deepened the implementation of the “225 5” strategic plan. In the first half of the year, the revenue growth rate increased sequentially, profits maintained a high growth rate, and asset quality remained steady. In 2023, Zhejiang Province launched the “Thousand Trillions” project (rolling forward more than 1,000 major provincial projects every year, completing an investment of more than 1 trillion yuan) and expanding 24 effective investment policies. The economic location advantage helps boost the company to maintain strong momentum for market expansion. Maintain the company's 2024-26 EPS forecast at 2.93/3.48/4.10 yuan. Maintain a “buy” rating.

Risk warning: Macroeconomic recovery falls short of expectations, and residents' unwillingness to increase leverage has failed to improve marginally.