Incidents:

On August 16, the Bank of Jiangsu released its 2024 mid-year report. In the first half of the year, revenue was 41.6 billion, up 7.2% year on year, and net profit to mother was 18.7 billion, up 10.1% year on year. The weighted average return on net assets (ROAE) was 16.4%, down 1.8 pcts year over year.

Comment:

1H24's revenue growth rate is resilient, and profits have maintained double-digit growth. The year-on-year growth rates of the Bank of Jiangsu's revenue, profit before provision, and net profit to mother in the first half of the year were 7.2%, 5.1%, and 10.1%, respectively. The growth rates changed by -4.6, -4.1, and +0.1 pct respectively from 1Q24. Profit maintained double-digit growth, and is expected to remain at the forefront of the industry. Among them, the growth rates of net interest income and non-interest income were 1.8% and 19.7%, respectively, with changes of +2.5 and -25.7 pcts from 1Q. Split the 1H24 profit growth rate structure:

Size and non-interest are still the main contributors, driving performance growth rates of 18.9 and 13.3 pcts respectively. Judging from marginal changes, the slowdown in interest spreads reduced the drag on performance growth, and the slowing of non-interest growth has declined. Under stable asset quality, the reduction in provision forms a certain backlash against profits.

The intensity of table expansion is high, and credit investment in key areas is relatively good. At the end of 2Q24, the Bank of Jiangsu's interest-bearing assets and loans (after caliber adjustment) grew by 11.2% and 11.9%, respectively. The growth rates decreased by 2.3 and 1.1 pct respectively from the end of 1Q, maintaining a high level of table expansion. In terms of loans, an increase of 161.3 billion was added in the first half of the year, an increase of 4.7 billion over the previous year; the 2Q quarter added 52.2 billion, a year-on-year decrease of 12.1 billion, accounting for 53% of interest-bearing assets, which was the same as at the end of 1Q. In the macro context of weakening demand for effective financing, corporate credit investment momentum is strong, and the scale has maintained double-digit growth.

At the structural level, the new caliber added 197.5, -18, and 19.1 billion dollars to public, retail, and notes respectively in the second half of the year. On the retail side, consumer loans and mortgages decreased by 13.5 billion and 0.6 billion respectively in the first half of the year, with year-on-year decreases of 29.5 and 7.2 billion. Variables such as employment, income, and expectations need to be improved, and the overall willingness of residents to spend and buy homes is weak. At the level of industry investment, manufacturing and green loans increased by 21% and 22% respectively at the end of June compared to the beginning of the year, which is higher than the 8.5%/17.8% increase in the bank's various loans/public loans.

In terms of non-credit assets, financial investment and interbank assets added 16.2 billion and 11 billion dollars during the 2Q quarter, with a year-on-year decrease of 32.4 and 2.4 billion. Together, the two accounted for 36.5% of interest-bearing assets, which was basically the same as at the end of the 1st quarter.

Deposit growth has slowed slightly, and the trend of regularization continues. At the end of 2Q24, the Bank of Jiangsu's interest-paying liabilities and deposits grew by 12.1% and 13.1%, respectively, down 1.1 and 1.4 pct from the end of 1Q, respectively. The share of deposits in interest-paying liabilities decreased by 1 pct to 63% compared to the end of 1Q. In the first half of the year, deposits increased by 216.1 billion, a year-on-year decrease of 7.7 billion; of these, 2Q added 8.4 billion in a single quarter, a year-on-year decrease of 21.3 billion. In the context of “disintermediation” of deposits, general deposit growth is under pressure.

By customer type, corporate and personal deposits increased by 217.6 billion and 94.8 billion yuan respectively in the first half of the year, an increase of 147.3 billion and a decrease of 16.8 billion yuan over the previous year. The share of public deposits increased by 1.4 pct to 55% compared to the end of 1Q. The increase in public deposits may be related to factors such as strong investment in loans and the inflow of major bank deposits into small and medium banks after the “manual interest compensation” was rectified. Looking at term types, current and term deposits increased by 64.1 billion and 248.3 billion respectively in the first half of the year, with increases of 10.3 and 120.2 billion over the previous year. The share of fixed term deposits increased by 5 pct to 65% compared to the beginning of the year, and the trend of regularization continues.

In terms of market liabilities, 2Q bonds payable and interfinancial liabilities increased by 16.6 billion and 40.2 billion respectively, an increase of 12.7 billion and an increase of 11.7 billion dollars over the previous year. The share of market debt in interest-bearing debt increased by 1 pct to 37% compared to the end of the previous quarter, effectively supplementing debt funds. According to Wind data, 2Q24's net deposit financing was 22.6 billion yuan, an increase of 33.2 billion over the previous year, moderately increasing active debt absorption.

The decline in NIM moderated to close at 1.9%. According to the company's semi-annual report data, the Bank of Jiangsu NIM was 1.9% in the first half of the year, 8 bps narrower than in 2023; the estimated data showed that NIM remained flat compared to 1Q in the first half of the year and was 7 bps narrower than in 2023, and the overall NIM is still in the narrowing channel. On the asset side, the company's interest-bearing asset and loan yields in the first half of the year were 4.21% and 4.98%, respectively, down 14 bps and 20 bps from 2023. Due to insufficient demand, the pricing of newly issued loans continued to decline. Combined with factors such as rolling maturity repricing of stock loans, lower interest rates on stock mortgages at the beginning of the year, and policy support for urban investment and chemical bonds resonated, asset-side returns declined. On the debt side, the company's interest-paying debt and deposit cost ratios in the first half of the year were 2.29% and 2.18% respectively, down 11 bps and 15 bps respectively from 2023. The effect of controlling the cost of early debt gradually became apparent. According to the official website, the company lowered deposit listing interest rates again on July 29. Individual and public interest rates were reduced by the same rate. Current periods, agreements, and notices were lowered by 5 bps, 10 bps, and 20 bps, respectively, and term and security deposit deposits of 1Y or less, and 2Y-5Y were lowered by 10 bps and 20 bps respectively. The effect of the current interest rate reduction was immediate, and the cost improvement effect of the regular interest rate reduction will be gradually released along with the rolling maturity repricing of products.

The non-interest rate grew by 20%, and the share of revenue fell to 34%. Bank of Jiangsu's non-interest revenue in the first half of the year was 14 billion (YoY +20%), accounting for a decrease of 1.6 pct to 34% from the end of 1Q. Among them, (1) net processing fee and commission revenue of 3 billion (YoY +11.3%) accounted for 22% of non-interest income, a slight increase over 1Q. Among them, agency fee revenue was 1.86 billion, a year-on-year growth rate of 31%, which was the main driving force for fee revenue growth.

At the end of 2Q, the retail AUM scale was 1.39 percent, up 11.7% from the beginning of the year, ranking first among commercial banks in the city. Among them, financial and private customers AUM was 400 billion, and the growth rate of scale and number of households exceeded 17%, and the financial management business grew steadily. (2) Net other non-interest income of 10.9 billion billion (YoY +22%), of which investment income and fair value change income were 8.1 billion and 2 billion, respectively, an increase of 2.2 billion and a decrease of 0.4 billion, respectively, compared with the previous year.

The defect rate remains low, and the risk compensation capacity is strong. At the end of 2Q, the Bank of Jiangsu had a bad performance rate and concern rate of 0.89% and 1.4% respectively; the bad + attention rate was 2.29%, up 7 bps from the beginning of the year; and the overdue rate at the end of the quarter was 1.12%, up 5 bps from the beginning of the year. In the first half of the year, the company's bad balance increased by 1.84 billion, an increase of 1 billion over the previous year. The scale of bad generation and write-off was 12.7 billion and 10.9 billion, respectively, an increase of 5 to 4 billion over the previous year. The annualized defect generation rate was 1.4%, up 0.4 pct from 2023. Risk exposure increased, and the company's write-off intensity increased simultaneously. By industry, the non-performing rates of real estate, zero loans, and personal operating loans were 2.83%, 2.08%, and 1.58%, respectively, up 29, 18, and 9 bps from the beginning of the year, and risks in specific fields are still somewhat exposed.

Credit impairment losses increased by 2.68 billion in a single quarter in 2Q, a year-on-year decrease of 1.1 billion; 2Q annualized credit impairment loss/operating income was 13%, a year-on-year decrease of 6 pcts. The end-of-quarter loan ratio and provision coverage rate were 3.18% and 357%, respectively, down 0.3 and 32 pct from the beginning of the year, and risk offsetting capacity remained high.

The margin of capital safety is strong, and the dividend rate remains stable. At the end of 2Q24, the company's core Tier 1, Tier 1, and capital adequacy ratios were 9%, 11.4%, and 13.4%, respectively, down 0.2 pct from the end of 1Q, and up 0.6 and 0.5 pct respectively. During the 2Q quarter, the company issued 20 billion perpetual bonds to supplement other Tier 1 capital. Risk-weighted assets grew 15% at the end of the first half of the year, up 1.2 pct from the end of 1Q. The company's profits have maintained double-digit growth, strong ability to replenish endogenous capital, and a strong margin of capital safety, providing strong support for subsequent scale expansion and business development. As of the close of trading on August 16, the dividend rate was 6.13%, ranking among the top listed banks.

Profit forecasting, valuation and ratings. As the leading commercial bank in Jiangsu, the company is deeply involved in the mainland, resonates with regional economic development, and continues to benefit from Jiangsu's economic growth dividends. The public sector focuses on key areas such as advanced manufacturing, small and micro, green, etc., and simultaneously deepens the “commercial banking+investment banking+asset management+trusteeship” strategy and promotes the construction of the “AFF” characteristic system; in high-income areas such as wealth management, the AUM scale ranks first among commercial banks in listed cities. Public-private partnerships expand the business space, and the pace of “light capital management+digital intelligence construction” is accelerating. Following economic recovery and recovery in credit demand in the physical sector, it is expected that the company's asset volume, price, and insurance will all achieve steady and positive performance. We maintain the company's 2024-26 EPS forecast at 1.79, 2, and 2.2 yuan. The current stock price corresponds to PB valuations of 0.6, 0.53, and 0.48 times, respectively, and the corresponding PE valuations are 4.29, 3.84, and 3.49 times, respectively. Taken together, the company has the characteristics of undervaluation, high dividends, and high profitability. It has risen 22% since the beginning of the year, ranking among the highest in the industry and maintaining a “buy” rating.

Risk warning: The recovery in financing demand fell short of expectations, and asset-side pricing continues to be under pressure in the context of CITIC chemical bonds.