Performance continues to increase. The first half of 2024 achieved revenue of 5.505 billion yuan (YoY, +12.0%), net profit to mother of 1.734 billion yuan (YoY, +19.6%), and an annualized weighted average ROE of 13.28%.

The growth rate of retail loans has slowed, and the company has increased the allocation of corporate loans and non-credit assets. Total assets at the end of the period were 367.3 billion yuan, up 9.8% from the beginning of the year; total loans were 238.9 billion yuan, up 7.4% from the beginning of the year and 1.6% from the end of March, and the pace of credit expansion slowed. Among them, corporate loans and retail loans increased by 14.6% and 3.1%, respectively, from the beginning of the year. As residents' risk appetite has remained low since 2022, residents' demand for credit is weak. At the end of the period, personal operating loans and personal consumption loans increased by 4.7% and 6.5%, respectively, compared to the beginning of the year, and mortgages decreased by 4.1% compared to the beginning of the year. The current pressure on retail loan investment has not been effectively relieved, and it is expected that micro-finance will continue to be under pressure in the short term.

The company continues to deepen its strategy of going small and diversifying, and the net interest spread narrowed slightly. Against the backdrop of weak demand for personal business loans, the company continues to deepen its strategy of becoming smaller and diversified to enhance its core competitive advantage. At the end of June, the share of personal operating loans under 0.3 million (inclusive) was 31.2%, up 0.4 percentage points from the beginning of the year, and the share of 0.3-0.5 million (inclusive) personal business loans was 13.05%, up 0.2 percentage points from the beginning of the year. The share of credit insurance in personal business loans reached 51.75%, up 1.24 percentage points from the beginning of the year.

The company's net interest spread in the first half of the year was 2.79%, 21 bps narrower than the previous quarter, and 4 bps narrower than in the first quarter. Although the company continues to deepen its strategy of being smaller and diversified, net interest spreads are still showing a downward trend due to the decline in the share of high-yield retail loans in total loans and a decline in interest rates on newly issued loans due to weak credit demand, but the downward pressure continues to ease.

Bad retail loans have been exposed, but they are still at a low level, and the quality of assets is excellent. The defect rate at the end of June was 0.76%, the same as at the end of March. The estimated annualized bad generation rate for the first half of the year was only 0.69%, and the asset quality was excellent. Among them, the retail loan non-performing ratio was 0.91%, up 13 bps from the beginning of the year, and the non-performing ratio of corporate loans was 0.66%, down 17 bps from the beginning of the year. At the end of the term, 1.36% were focused on loans, and 1.54% were overdue loans, up 19 bps and 31 bps, respectively, from the beginning of the year. Since individual businesses are less resilient to risks, it is normal that pressure on the quality of the company's assets has increased. However, indicators such as the non-performing rate and overdue rate are still at a low level. At the same time, the company's bad certification is strict. “The ratio of loan balance overdue for 60 days or more to non-performing loans is 107.04%” at the end of the period, which also shows that the company's small and micro business model already has the ability to cross the cycle to a certain extent. The company's end-of-period provision coverage rate was 539%, the same as at the end of March, and is at the forefront of the industry.

Investment advice: The company continues to deepen its strategy of becoming smaller and diversified, and maintains the 2024-2026 net profit forecast of 3.9/4.6/5.6 billion yuan, corresponding to a year-on-year growth rate of 19.0%/17.5%/22.1%. The current stock price corresponds to the 2024-2026 PE value of 5.3x/4.5x/3.7x, maintaining the “superior to market” rating.

Risk warning: Macroeconomic recovery falls short of expectations and will drag down the company's net interest spreads and asset quality.