Matters:

Bank of Ningbo released its 2024 semi-annual report. 24H1 achieved operating income of 34.4 billion yuan, a year-on-year increase of 7.13%, and realized net profit to mother of 13.6 billion yuan, an increase of 5.42% year-on-year, and a semi-annual weighted average ROE of 14.7%. By the end of the year 2024, the company's total assets reached 3.03 trillion yuan, an increase of 11.9% over the beginning of the year. Among them, the loan size increased 12.5% from the beginning of the year, and the deposit size increased 17.6% from the beginning of the year.

Ping An's point of view:

Revenue bucked the trend, and the main business maintained high growth. Bank of Ningbo's 24H1 revenue growth rate rose 1.4 percentage points from the first quarter to 7.1% year on year. In particular, the company's net interest income bucked the trend. 24H1 net interest income increased 14.7% year on year (+12.2%, 24Q1). Interest spread resilience supported the company's interest spread business to remain steady. In terms of non-interest income, 24H1's non-interest revenue increased 5.7% year-on-year (-4.7%, 24Q1). Among them, net income from handling fees and commissions continued to be under pressure, with a negative year-on-year increase of 24.9% (-22.9%, 24Q1). Capital market fluctuations suppressed the release of residents' wealth management needs, changes in investors' risk appetite, and the backward impact of fee reduction and concession policies, leading to weak growth in the middle income business. In addition, the company's semi-annual other non-interest revenue increased 2.5% (+3.0%, 24Q1) year-on-year, maintaining a slight positive increase. The company's 24H1 net profit grew 5.4% year on year (6.3%, 24Q1). Increased provision strength was an important reason for the decline in profit growth. The company's 24H1 credit impairment losses increased 8.8% year on year (5.5%, 24Q1).

Interest spreads have remained resilient, and scale expansion has remained positive. Bank of Ningbo's 24H1 net interest spread level was 1.87% (1.90%, 24Q1), down 6BP from the previous year. The decline is expected to be in a better position in the industry. The increase in cost-side dividend release contributions is an important reason supporting interest spreads. The company's 24H1 interest-bearing debt cost ratio was 2.12% (2.15%, 23A), of which the deposit cost ratio was 1.96% (2.01%, 23A). We calculated that the company's 24Q2 interest-bearing debt cost ratio declined by 8BP to 2.02% in the first quarter according to the balance at the beginning of the year. The acceleration of deposit repricing, structural adjustments, and suspension of “manual interest payments” relieved the pressure on the company's cost side. The company's interest rate on active term deposits fell by 5BP to 2.40% from the beginning of the year. Asset-side interest rates continued to decline. The company's 24H1 yield on interest-bearing assets fell 11BP to 4.05% from the beginning of the year, with loan yields falling 21BP to 4.92% from the beginning of the year. As the industry as a whole faces lower LPR and insufficient effective demand, loan interest rates are expected to continue to be under pressure.

Scale growth maintained a positive trend. The company's 24H1 total asset size increased 16.7% year on year (+14.3%, 24Q1), of which loan size increased 20.6% year on year (+24.2%, 24Q1). Although the growth rate declined month-on-month, the absolute value is expected to remain in the leading position in the industry. Looking at the split loan structure, the company's loan growth in the second quarter mainly depended on strong public business, and the quarterly increase in public loans accounted for 61.8% of the increase in the second quarter. Personal retail loans also performed well. 24H1 personal loans increased 18.6% year on year (+27.3%, 24Q1). It is not easy to maintain a high growth rate when the industry is generally facing insufficient retail demand. In particular, the company's personal consumption loans increased 23.8% year on year. We expect it to be related to the rapid increase in the size of our subsidiary Ningyin Consumer Finance. The asset size of Ningyin Consumer Finance increased 18.5% at the end of the year compared to the beginning of the year. On the debt side, 24H1 deposits increased 18.7% year over year (+14.8%, 24Q1), maintaining a high growth rate.

Asset quality remained excellent, and provision levels declined slightly. Bank of Ningbo's non-performing rate remained flat at 0.76% at the end of the first quarter. We estimate that the company's 24H1 annualized non-performing loan generation rate was 1.20% (1.23%, 24Q1). The pressure to generate bad loans decreased slightly, but the non-performing personal loan rate rose 17BP to 1.67% from the beginning of the year. There are also fluctuations in forward-looking indicators. The company's 24H1 attention rate rose 28BP to 1.02% from the end of the first quarter, and the overdue rate fell 1BP to 0.92% from the beginning of the year. Against the backdrop of a slowdown in the recovery slope of consumer demand, disturbances in retail asset quality are worth paying attention to. In terms of provision, the company's 24H1 provision coverage rate and loan ratio declined by 11.1pct/8bp to 421%/3.19% month-on-month, respectively. The provision coverage rate remained high, and the risk compensation capacity remained excellent.

Investment advice: Retail transformation and high-quality development, optimistic that the company will maintain a high level of profit. As a benchmark for urban commercial banks, Bank of Ningbo benefits from a diversified shareholding structure, market-based governance mechanism and strategic strength brought by a stable management team. Assets and liabilities are steadily expanding, and profitability is leading the industry. Under the protection of steady asset quality, solid provisions support the company's steady operation and performance flexibility in the future. We maintain the company's 24-26 profit forecast. We expect the company's 24-26 EPS to be 4.10/4.49/4.95 yuan, respectively, with corresponding profit growth rates of 6.1%/9.6%/10.2%, respectively. Currently, the company's stock price is 0.70x/0.62x/0.55x, respectively, corresponding to 24-26 PB. Given the company's prominent marketability genes, it is expected that profitability and asset quality from a long-term perspective will continue to lead the industry and maintain a “highly recommended” rating.

Risk warning: 1) The economic downturn has led to a rise in pressure on the asset quality of the industry that exceeds expectations. 2) As interest rates declined, industry interest spreads narrowed beyond expectations. 3) Increased pressure on housing companies' cash flow has led to an increase in credit risk.