Incident: On August 28, the Chongqing Agricultural Commercial Bank released its 2024 mid-year report. 24H1 achieved cumulative revenue of 14.7 billion yuan, YoY -1.3%; net profit to mother of 7.4 billion yuan, YoY +5.3%; non-performing rate of 1.19% and provision coverage of 360%.

The decline in revenue has narrowed, and profit growth has rebounded markedly. 24H1 Chongqing Agricultural Commercial Bank's revenue was -1.3% year-on-year, and the growth rate increased by 1.6 pcts compared to 24Q1. Looking at the revenue segment, 24H1's net interest income, intermediate income, and other non-interest income were -8.0%, -9.4%, and +47.2% year-on-year, respectively. Compared with 24Q1, the growth rates were +1.2pct, -9.6pct, and +0.5pct respectively. Other non-interest income continued to grow at a high rate, mainly because the company seized trading opportunities, and investment income increased significantly.

24Q2's net profit for the single quarter was +26.3% year-on-year, supporting 24H1's profit growth performance. Net profit of 24H1 was +5.3% year-on-year. The growth rate increased by 16.1 pct compared to 24Q1. The increase in net profit growth rate increased a lot mainly due to the sharp decline in asset impairment losses in the 24Q2 single quarter, which supported profit performance for the quarter. Furthermore, the cost-revenue ratio continued to decline, at 27.2% at the end of 24H1, down 2.0pct from the end of 24Q1.

Loan growth has rebounded, contributing a major increase to the public sector. The total assets, loan amount, and total deposit amount of 24H1 Chongqing Agricultural Commercial Bank increased by 5.0%, 4.9%, and 4.3%, respectively. The growth rates were +0.8 pct, +0.1 pct, and -1.5 pct, respectively, compared with 24q1. Among them, 24H1's balance of public loans was +8.0% year-on-year, and the balance of personal loans was -0.9% year-on-year. Mainly, the growth rate of mortgage loans was under pressure, and the growth rate of personal business loans remained relatively stable.

Net interest spreads continued the downward trend. Chongqing Agricultural Commercial Bank's 24H1 net interest spread was 1.63%, down 10BP compared to '23. On the asset side, the yield on 24H1 interest-bearing assets fell 18BP to 3.49% from '23. Among them, the decline in loan yield was the main drag factor. The yield on 24H1 loans to public and personal loans fell 20BP and 43BP respectively from '23. On the debt side, the yield on 24H1 interest-bearing debt fell 8BP to 1.95% from '23, mainly benefiting from a marked improvement in time deposit costs.

The defect rate remained stable, and provisions remained high. The defect rate at the end of 24H1 was 1.19%, which remained stable for three consecutive quarters. The forward-looking indicators fluctuated. The attention rate and overdue rate at the end of 24H1 were 1.41% and 1.52%, compared to +27BP and +10BP at the end of 24Q1, respectively. However, due to the focus on loans and overdue loans, most of them were insured loans, the risk was relatively manageable. The net non-performing rate of 24H1 was 0.84%, up from '23, but the increase was relatively small. The assessment was mainly due to fluctuations in asset quality on the retail side. The provision coverage rate and loan ratio at the end of 24H1 were 360% and 4.28%, respectively. Compared with the changes of -7.2pct and -9BP at the end of 23, the risk compensation capacity is strong.

Investment advice: Interest spread reduction is expected to narrow, scale expansion, and the Chongqing Agricultural Commercial Bank is deeply involved in mainland Chongqing. Major projects such as the Chengdu and Chongqing Shuangcheng Economic Zone and the construction of a new land and sea corridor in the west provide strong support for the company's scale expansion; time deposits account for relatively high, and the effects of lower deposit listing prices on debt costs are expected to continue to show, thus supporting net interest spread performance; the dividend ratio has remained at 30% in the past three years. Currently, it is planned to implement mid-term dividends. EPS is expected to be 1.01, 1.07, and 1.13 yuan respectively in 24-26, and the closing price on August 28, 2024 corresponds to 0.5 times 24-year PB, maintaining the “recommended” rating.

Risk warning: macroeconomic fluctuations exceeded expectations; asset quality deteriorated; the decline in industry net interest spreads exceeded expectations.