Incidents:

On August 30, the Bank of Beijing released its 2024 semi-annual report, achieving operating income of 35.5 billion yuan, a year-on-year increase of 6.4%, and net profit to mother of 14.6 billion yuan, an increase of 2.4% over the previous year. The weighted average return on net assets was 10.98%, -0.6pct year over year.

Comment:

The growth rate of net interest income picked up, and both revenue and profit maintained positive year-on-year growth. The company's 24H1 operating income, profit before provision, and net profit to mother grew by 6.4%, 5.4%, and 2.4% year-on-year respectively. The growth rates decreased by 1.5, 4.3, and 2.6 pcts respectively from 1Q. Among them, the year-on-year growth rates of net interest income and non-interest income were 3.8% and 13.4%, respectively, with changes of 1.9 and -13.6 pcts from 1Q, respectively. Dividing the year-on-year profit growth structure, scale expansion and non-interest income were the main contributors, driving performance growth rates of 16.2 and 8.4 pct, respectively. Judging from marginal changes, the main factors of improvement were net interest spreads and negative provision narrowing. The main factors that dragged down include a slowing pace of scale expansion, a month-on-month decrease in the positive contribution of non-interest income, and a widening negative impact on operating expenses.

The share of loans has risen to a high level of 61.6% in recent years, and it still dominates the expansion of public credit. The company added 52 billion dollars in interest-bearing assets in a single quarter. Under a higher base, the year-on-year decrease of 83 billion was achieved, and the year-on-year balance growth rate decreased by 3 pcts to 7.6% compared to the end of 1Q; among them, the year-on-year loan growth rate decreased by 2 pcts to 9.6% compared to the end of 1Q. Looking at the investment structure of interest-bearing assets, 2Q loans, financial investment, and interbank assets increased by 47.9 billion, -23.4 billion, and 27.5 billion, respectively, with year-on-year decreases of 30.7, 64.1 billion, and an increase of 11.8 billion, respectively. The 2Q expansion was mainly driven by credit assets. By the end of 24Q2, the share of loans increased by 0.5pct to 61.6% compared to the end of the previous quarter, which is the highest level in recent years.

Judging from the incremental structure of loans, the expansion of public credit still dominates. (1) From a public perspective, the Bank of Beijing added 129.4 billion yuan in corporate loans (excluding discounts) in the first half of the year, a year-on-year decrease of 24.2 billion. Judging from the company's 1Q parent bank credit increase of 90.9 billion, it is estimated that the 2Q new corporate loan scale may be close to 40 billion, accounting for about 80% of the increase in general loans in a single quarter in 2Q. Industry investment. The top three growth industries were scientific research and technology services, information communication, software and information technology services, and manufacturing, which increased by 71.5%, 20.1%, and 20% respectively from the beginning of the year, which was significantly higher than the 7.6%/11.1% increase of various loans/public loans; (2) From a retail perspective, 12.4 billion new retail loans were added in the first half of the year, a decrease of 18.2 billion over the previous year, and the balance ranking remained the top of urban commercial banks; among them, operating loans, consumer loans, and credit cards increased by 9.1, 4.8, and 2.6, respectively By billion, mortgages have been reduced by 4 billion. The estimate is mainly hampered by factors such as insufficient residents' willingness to buy homes and high pressure to “pay off early” mortgages. By the end of 24Q2, operating and consumer loan balances had increased by 1.4 pct compared to the beginning of the year.

2Q deposits continued to increase year-on-year, and the growth rate of retail deposits rose to 20.8%. The Bank of Beijing's interest-paying debt increased by 153.3 billion in the first half of the year. Among them, the 2Q quarter increased by 37.2 billion, the year-on-year decrease of 81.6 billion in the higher base, and the year-on-year balance growth rate decreased by 3 pcts to 8.6% compared to the beginning of the year. Judging from the new interest-paying debt structure, the amount of new deposits, payable bonds, and interbank debt in the 2Q single quarter was 161.8 billion, 2.3 billion, and -126.9 billion, respectively. Among them, deposits increased by 84.3 billion yuan year-on-year, and the year-on-year growth rate of deposit balances at the end of 24Q2 increased 3.7 pct to 13% compared to the end of the previous quarter. The deposit structure was further examined. At the end of 24Q2, the growth rates of retail deposits and public deposits of the Bank of Beijing were 20.8% and 8.5%, respectively. In terms of term structure, the Bank of Beijing's regular and current deposits increased by 167.4 billion and 60.8 billion yuan respectively at the end of the previous year, up 48.3 and 19.8 billion yuan respectively over the same period last year. By the end of 24Q2, time deposits accounted for 57.8%, a slight increase of 0.4 pct from the beginning of the year.

Interest spreads narrowed to 1.47% in the first half of the year, and the 2Q decline in interest spreads subsided. The Bank of Beijing's 24H1 interest spread disclosure value was 1.47%, 7 bps narrower than in 2023. On the asset side, the yield on interest-bearing assets and loans in the first half of the year was 3.58% and 4.03% respectively, down 10 and 16 bps from 2023, respectively. Affected by factors such as lower stock mortgage interest rates, rolling repricing of stock loans, weak demand, and lower interest rates for newly issued loans, loan pricing is still on a downward channel; on the debt side, interest payment liabilities and deposit cost ratios for the first half of the year were 2.09% and 1.88%, respectively. The effects of a series of cost control measures such as falling 6 bps and 9 bps respectively in the previous round of listing interest rates were gradually showing results.

According to estimates, the company's 24H1 interest spread was 1.48%, about 1 bps narrower than 1Q, and the decline narrowed quarter-on-quarter. Among them, the estimated return on interest-bearing assets and the cost ratio of interest-paying debt were 3.59% and 2.13%, respectively, down 7 bps and 6 bps from the 1Q year, respectively. The Bank of Beijing lowered its listing interest rate again in August, and the cost improvement dividend is expected to be further released.

Non-interest income increased 13.4% year over year, and the share of non-interest income increased by 1.8 pct to 28.2% compared with the same period last year. Bank of Beijing's non-interest income in the first half of the year grew 13.4% year on year, down 13.6% from 1Q. Among them, (1) net processing fees and commission revenue fell 16.9% year on year to 2.08 billion, slightly wider than 1Q, and fee revenue continued to grow negatively, mainly affected by factors such as capital market fluctuations and “integrated reporting” channels. Agency and contract business revenue of 1.17 billion (YoY -16.8%), settlement and settlement business, underwriting and consulting services maintained a good growth trend; (2) net other non-interest income increased 25.5% year over year to 7.93 billion, under a higher base. The growth rate decreased by 25.6pct from 1Q. Net other non-interest income mainly consists of investment income of 6.97 billion billion (YoY +29.7%) and profit and loss from changes in fair value 0.84 billion (YoY -0.7%). The increase in net other non-interest income was mainly boosted by two factors. First, the company grasped the bond market in a timely manner, which led to an increase in investment income and fair value profit and loss; second, in the context of declining market interest rates, it increased the circulation of assets in the bill business, which led to an increase in trading price spread revenue.

Efforts to dispose of non-performing assets continue to be stepped up, and asset quality remains stable. As of the end of 24Q2, the Bank of Beijing had a non-performing loan ratio of 1.31%, the same as at the end of 1Q; the loan focus ratio was 1.87%, up 9 bps from the beginning of the year; the total bad + concern rate was 3.17%, up 7 bps from the beginning of the year; and the overdue rate was 1.82%, up 10 bps from the beginning of the year.

During the reporting period, the company continued to step up its efforts to dispose of non-performing assets. In the first half of the year, 8.12 billion yuan of non-performing loans were written off, an increase of 2.8 billion yuan over the previous year; it is estimated that the net bad generation rate in the first half of the year was 0.98%, an increase of 19 bps over 2023. In terms of provision, the company's credit impairment loss/average total assets in the first half of the year was 0.49%, up 9 bps from 1Q, and the same as the same period last year. By the end of 24Q2, the provision coverage rate was 208.2%, down 5 pcts from the end of 1Q, and the loan ratio was 2.72%, down 7 bps from the end of 1Q.

Capital adequacy ratios at all levels have remained stable. At the end of 23Q2, the company's RWA growth rate was 8.6%, down 4.6pct from the end of 1Q. As of the end of 24Q2, the company's core Tier 1, Tier 1, and capital adequacy ratios were 9.15%, 11.99%, and 13.11%, respectively, a change of 4, 4, and -1 bps from the end of 1Q.

Profit forecasting, valuation and ratings. The Bank of Beijing is deeply involved in the capital, and economically developed regions such as Beijing, Yangtze River Delta, and Pearl River Delta account for more than 70% of loans. Retail transformation has continued to advance in recent years. Since 2022, the “five major transformations” have been accelerated, the revenue contribution of the retail business has increased, and it is expected that the effects of retail transformation will continue to be unleashed in the future. Maintaining the company's 2024-2026 EPS forecast of 1.28/1.35/1.41 yuan, the current stock price is 0.41/0.38/0.35 times the corresponding PB valuation, respectively, maintaining the “buy” rating.

Risk warning: If the macroeconomic downturn exceeds expectations, it may increase the potential risk of exposure to large amounts of risk.