Core views:

The Bank of Qingdao released its 2024 semi-annual report. 24H1 revenue, PPOP, and net profit to mother increased by 12.0%, 12.1%, and 13.1% year-on-year respectively. The growth rates changed by -7.3 pct, -12.5 pct, and -5.7 pct respectively compared to 24Q1. The company's 24Q2 performance growth rate declined somewhat, but it maintained double-digit growth in the first half of the year, and the performance performance was resilient. Judging from the cumulative performance driver, the expansion of scale, reduction in other income and expenditure, and the improvement in the cost-revenue ratio made positive contributions. The narrowing of net interest spreads, effective tax rates, and net handling fees were the main drag.

Highlights: (1) The scale of credit is growing steadily. Interest-bearing assets at the end of 24Q2 increased 15.7% year on year. Among them, loans increased 12.3% year on year. Public sector growth was strong, the structure continued to be optimized, and technology, green, and agricultural loans maintained a high growth rate. At the end of 24Q2, interest-bearing debt increased 14.6% year on year, and deposits increased 11.2% year on year. Growth in public deposits was weak, and personal time deposits increased high. (2) Interest spreads stabilized month-on-month. 24H1's net interest spread was 1.77%, the same as 24Q1, and the margin gradually stabilized.

The yield on 24H1 interest-bearing assets was 4.07%, down 10BP from the end of 23. The yield on loans and return on investment assets were under pressure. The company actively expanded its interbank business and allocated high-yield and high-current assets through multiple channels. The return on interbank assets rebounded from the end of 23. The cost ratio of interest-bearing debt fell by 7BP in the first half of the year, and debt cost control was effective. The 24H1 deposit cost ratio fell by 10BP from the end of 23, and the cost ratio for all types of products dropped significantly. (3) High growth in other non-interest rates.

24H1's other non-interest rate increased 54.8% year over year. The main contribution came from investment income and profit and loss from changes in fair value. The company increased public fund investment in a timely manner in the second half of '23, and seized the upward opportunity in debt market valuations in the first half of '24 to achieve a high increase in other non-interest rates.

Concern: (1) Revenue growth rate declined. Net transaction fee revenue for the 24Q2 quarter increased -14% year over year, which is expected to be mainly dragged down by fee cuts in the insurance industry and weak credit card consumption. (2) Poor retail sales are rising. The 24H1 non-performing rate was 1.17%, down 1BP from month to month, mainly due to improvements in the quality of public loan assets. The retail non-performing rate increased by 51 BP from the end of 23, and the attention rate and overdue rate both increased by a certain margin. 24H1 estimates that the new bad generation rate increased 17 bps year over year, focusing on the subsequent risk situation. The provision coverage rate at the end of 24Q2 was 234.43%, an increase of 2.08pct compared to 24Q1, and the risk compensation capacity was further strengthened.

Profit forecast and investment advice: The net profit growth rate of the company in 24/25 is expected to be 10.69%/9.67%, EPS is 0.63/0.70 yuan/share, respectively. The current stock price corresponds to the 24/25 PE of 5.10X/4.63X, respectively, and the corresponding 24/25 PB is 0.53X/0.48X, respectively. Taking into account the company's historical PB (LF) valuation center and fundamental conditions, the company's reasonable value of 4.94 yuan per share, corresponding to the 24-year PB valuation of about 0.8X, according to the current AH overflow In terms of price ratio, H shares have a reasonable value of HK$3.57 per share, all with a “buy” rating.

Risk warning: (1) the quality of retail assets deteriorated due to a decline in economic growth exceeding expectations; (2) deposit costs rose more than expected; (3) policy regulation exceeded expectations.