Core views:

Qilu Bank released its 2024 semi-annual report, and the company released a quick performance report in the early stages. The market already anticipated various indicators. At the end of 24H1, the company's revenue and PPOP increased by 5.5% and 4.5%, respectively, which were the same as 24Q1; net profit to mother grew 17.0%, up 1 pct from 24Q1.

Judging from the cumulative performance driver, the expansion of scale, reduction in provision plans, other income and expenditure, and net handling fee revenue have contributed positively. The narrowing of net interest spreads is the main drag. (Data source for this report: iFind)? Highlights: (1) Asset scale expansion is steady. Interest-bearing assets and interest-bearing liabilities increased by 17.9% and 17.8%, respectively, at the end of 24Q2. On the asset side, loans increased 15.3% year on year at the end of 24Q2, maintaining a high increase in public credit. Financial investment increased 24.2% year on year. The increase in the single quarter of 24Q2 was higher than the increase in loans, and the scale of increase in interest rate bonds and financial bonds was high. On the debt side, the deposit growth rate declined somewhat. The main drag was that deposit stability was weak, active debt growth remained high, and the size of interbank deposits increased by 8.6 billion yuan during the 24Q2 period. (2) Asset quality continues to improve. The defective rate at the end of 24Q2 was 1.24%, down 1BP from 24Q1; the loan ratio was 1.14%, down 18BP; the overdue rate was 0.99%, down 1BP from the end of 23; the net generation rate of 24H1 was 0.76%, down 9 bps year on year; the 24Q2 provision coverage rate was 309.25%, up 4.5 pct from the end of 24Q1, strengthening the provision safety cushion. (3) High increase in non-interest income. 24H1's net handling fee revenue increased 11.7% year on year, and settlement revenue grew faster; 24H1's other non-interest income increased 38.5% year over year, and the main contribution came from the fulfillment of traders' profits and other debt investment income.

Concern: (1) Interest spreads have narrowed. 24H1's net interest spread was 1.54%, down 20BP from 23A.

On the asset side, on the one hand, due to factors such as heavy pricing, LPR cuts, and the company's optimized risk pricing strategy, the yield on loans at the end of 24H1 was 4.35%, down 32BP from 23A; on the other hand, changes in interest rates in the bond market drove the return on investment assets back 15 BP. On the deposit side, the deposit cost ratio at the end of 24H1 decreased by 4BP compared to 23A, benefiting from lower interest rate listing interest rates, manual interest rate compensation and the company's debt structure adjustments. (2) The non-performing rate of personal loans has increased. The company's retail loan non-performing ratio at the end of 24Q2 was 1.32%, up 14BP from 24Q1. Focus on subsequent risk exposure.

Profit prediction and investment advice: The company is based in Shandong, is rooted in Jinan, and has maintained high-quality development. Over the past year, its performance has been clearly better than the overall level of commercial banks in listed cities. In the future, in the context of major economic provinces triggering a major boom, credit demand is expected to remain high. At the same time, asset quality continues to improve, and safety pads are consolidated. Performance release potential is high, and growth is prominent. The net profit growth rate of the company in 24/25 is expected to be 16.26%/13.47%, EPS 0.99/1.13 yuan/share, respectively. The current stock price is 4.71X/4.13X for 24/25 PE, respectively, and 0.59X/0.52X for 24/25 PB respectively. Taking into account the company's historical PB (LF) valuation center and fundamentals, referring to comparable companies, the company is given a reasonable value of 7.15 yuan per share, corresponding to the 24-year PB valuation of about 0.9X, maintaining a “buy” rating.

Risk warning: (1) macroeconomic downturn; (2) interest rates fluctuate sharply; (3) asset risk exposure in counties exceeds expectations; (4) regional deposit competition intensifies.