The net profit, revenue, and PPOP of the Zhangjiagang Bank in January-September were +6.3%, +2.9%, and +7.1%, respectively. The growth rate was -3.0 pct, -4.5 pct, and -6.2 pct in January-June. There has been a marginal decline in performance growth, mainly due to the fact that effective demand still needs to be boosted, and net interest income continues to be under pressure. The main highlights include: 1) the decline in revenue has narrowed, and other non-interest rates have continued to grow at a higher rate; 2) capital levels have increased; and 3) the non-performing rate has declined month-on-month. The company promotes minor transformation and steady asset expansion. It should enjoy a certain valuation premium and maintain a buying rating.

Credit expansion is slowing down, and deposits are growing steadily

The year-on-year growth rates of total assets, loans, and deposits at the end of September were +6.3%, +8.3%, and +7.4%, respectively, compared with -1.9pct, -3.3pct, and +0.7pct at the end of June. Credit expansion is slowing, probably mainly due to weak retail demand. Q3 loans increased by 0.3 billion yuan, including +5.8 billion yuan, -2.5 billion yuan, and -3 billion yuan for public loans, retail loans, and -3 billion yuan respectively. There was a steady investment in public loans, and retail loans contracted month-on-month. The company's net interest spread for January-September was 1.61%, down 6 bps from the first half of the year. Our estimates are mainly due to asset side drag. Net interest income in January-September was -14.6% year-on-year, and the growth rate was -3.6pct compared to January-June, and net interest income continued to be under pressure.

The decline in income has narrowed, and the level of capital has been consolidated

The mid-quarter quarter of January-September was -26.8% year-on-year. The growth rate was +20.5pct compared to January-June, and the mid-term decline narrowed somewhat. Investment income maintained a high growth rate. Investment income (profit and loss on investment + profit and loss from changes in fair value) in January-September was +150.8% year-on-year, a slight decrease from the January-June growth rate (+175.9% compared to January-June), but still maintained a high growth rate, driving revenue growth. At the end of September, the core Tier 1 capital adequacy ratio and capital adequacy ratio were +0.45pct and +0.11pct respectively to 9.87% and 12.69% at the end of June, and the capital level was consolidated.

Bad month-on-month decline, forward-looking indicators fluctuate

At the end of September, the defect rate was 0.93%, and the provision coverage rate was 411%, compared with -1 bp and -13 pct at the end of June, respectively. There was an unfavorable margin of decline, but the forward-looking risk indicators fluctuated, or were mainly affected by minor risk fluctuations. Pay attention to subsequent risk changes. The attention rate at the end of September was 1.92%, +25bp compared to the end of June; the estimated 24Q3 annualized bad generation rate was 0.93%, +11bp month-on-month. The estimated annualized credit cost in Q3 was 0.30%, -9bp year over year, driving profit release. From January to September, the cost-revenue ratio was 30.3%, compared to -2.7 pct. The results of cost reduction and efficiency were evident.

Give 25-year target PB 0.60 times

Given that credit demand has yet to be repaired, we forecast that the company's net profit for 24-26 will be 1.9/2/2.2 billion yuan (previous value 1.9/2.1/2.3 billion yuan), with a year-on-year growth rate of 5.6%/6.6%/8.6%, and a 25-year BVPS forecast value of 8.11 yuan, corresponding to 0.52 times PB. Comparatively, the company's 25-year Wind unanimously predicted an average PB value of 0.51 times. The company promoted minor transformation and steady asset expansion, and should enjoy a certain valuation premium. It was given a 25-year target PB0.60 times, a target price of 4.87 yuan, and a purchase rating.

Risk warning: Policy promotion fell short of expectations; asset quality deteriorated beyond expectations.