Incident: Recently, the Bank of Jiangsu disclosed its 2024 semi-annual report: 2024H1 net profit +10.05% YoY (2024Q1 +10.02% YoY); operating income +7.16% YoY (2024Q1 +11.73% YoY); annualized weighted ROE 16.42% (2024Q1 annualized weighted ROE 15.38%), -1.78pct YoY.

Comment:

Revenue growth has slowed, and profits have maintained double-digit growth. 2023H1 The year-on-year revenue growth rate of the Bank of Jiangsu fell 4.56pct to 7.16% from Q1; the year-on-year growth rate of net profit to the mother rose slightly by 3 bp to 10.05% compared to Q1, continuing the double-digit level since 2021, higher than the average growth rate of the Urban Commercial Bank of 5.70 pct, which is the highest among listed banks with disclosed data. The company's performance grew rapidly, mainly due to scale expansion, the drive of non-interest income other than middle income, and provision for back-up, while net interest spreads were the main drag. The profit growth rate increased marginally compared to Q1, mainly due to the change in provision and revenue contributions from negative to positive, while the main drag was the narrowing of other non-interest income contributions.

Net interest spreads continued to narrow, and the balance and liability structure was optimized. 2023H1 Bank of Jiangsu's net interest spread was 1.90%, -38 bps year on year, but it was still higher than the net interest spread of 1.54% for all commercial banks and 1.45% for all commercial banks in the same period. Among them, the return on interest-bearing assets is 24 bps, and the interest-bearing debt cost ratio is 7 bps. The former is the main reason for the decline in interest spreads. On the asset side, the company increased its credit investment, and the proportion of loans in interest-bearing assets increased year-on-month. Credit investment was skewed towards the public sector, mainly in leasing and business services, manufacturing, water environment and public facilities management; in retail, the scale of consumer loans, operating loans, and mortgage loans declined to varying degrees, while the scale of credit card business increased slightly; in terms of guarantee methods, guaranteed loans accounted for +2.94 pct, while credit loans and pledged loans accounted for -1.55pct and -1.39pct respectively. On the debt side, the impact of the reduction in deposit interest rates gradually became apparent. The average deposit cost ratio decreased by 8 bps over the same period last year, and the share of interest-bearing debt increased.

The defect rate declined month-on-month, and the attention rate and overdue rate increased slightly. At the end of 2024Q2, the Bank of Jiangsu had a non-performing rate of 0.89%, -2bp month-on-month, at a low level of listed banks; the interest rate was +3bp to 1.40% month-on-month, still lower than the industry average; the overdue rate was +5bp at the beginning of the year, with deviations of +4pct and +11.76pct for loans overdue at the beginning of the year, and the generation of hidden non-performing loans increased; the provision coverage rate was -14.02pct to 357.20% month-on-month, and is still at a relatively adequate level. Overall, the company's core asset quality indicators remain stable, have strong ability to withstand risks, and have sufficient profit margins.

Credit has been deployed at an accelerated pace, and capital has been consumed. The year-on-year growth rates of total assets, total liabilities, total loans, and total deposits at the end of 2024Q2 compared to -61 bps, -84 bps, +4.47 pct, and -1.39 pct at the end of the previous year to 14.46%, 13.82%, 17.61%, and 13.12%, respectively, and continued to maintain double-digit levels. The company's core Tier 1 capital adequacy ratio was -19bp to 8.99% month-on-month, and there is still some safe distance from the bottom line of supervision.

Profit forecast: The Bank of Jiangsu has an outstanding location advantage. The company adheres to the market position of “serving small and medium-sized enterprises, serving the local economy, and serving urban and rural residents”, focusing on creating business characteristics in the fields of small and micro finance, technology finance, green finance, cross-border finance, etc., speeding up the construction of a more open wealth management ecosystem, and solidly completing the “five major articles”. The retail AUM reached 1.39 trillion yuan at the end of 2024Q2, ranking first among commercial banks in terms of scale and increase. We expect the company's closing price on August 19, 2024 to be 0.62 times, 0.56 times, and 0.50 times the 2024-2026 PB, respectively.

Risk factors: the economy declined beyond expectations, policies fell short of expectations, asset quality deteriorated significantly, etc.