Bank of Chengdu - An urban commercial bank with a deep local state-owned background. It focuses on public administration and credit business, and plays a leading role in the western part of the Cheng-Chongqing economic circle. In recent years, the company has fully grasped the dividends of the era of location strategy upgrades and rapidly expanded to become the first bank in the West to reach the “trillion level” of assets. The asset situation is healthy and excellent, and the development momentum is steady and strong. In the context of the upgrading of the Chengdu and Chongqing region into a national economic construction strategy, the Bank of Chengdu has successfully become one of the leading commercial banks in the city, injecting strong financial support into boosting the local economy.

Why are we optimistic about Bank of Chengdu?

Reason 1: The future of economic development in the Chengdu region of Sichuan is broad

Since the Cheng-Chongqing Shuangcheng Economic Zone was upgraded to a national strategy in 2020, with the support of various policies, the region's economic growth rate was significantly higher than that of the whole country, and future plans are benchmarked with developed eastern provinces to become the fourth pole of the Chinese economy. The construction of infrastructure and high-tech industrial parks in the region has provided the Bank of Chengdu with a number of high-quality development opportunities.

Reason 2: Bank of Chengdu's credit business has diverse potential for rapid development.

According to historical data, the Bank of Chengdu's public loan and credit business is its main driving force. Infrastructure loans are the core of its expansion, and supporting the high-quality development of the manufacturing industry and local retail business has also enriched the business structure of the enterprise. Diversified and efficient development has become the main theme in recent years. Furthermore, the Bank of Chengdu has long-term cooperation with local governments. Policy loans such as “Rongyi Loans,” “Rent Transfer,” and “Tax and Electricity Index Loans” have helped the Bank of Chengdu continuously strengthen its influence in the region. Judging from the growth rate of corporate loan investment this year, it seems that the impact of the “asset shortage” on the Bank of Chengdu is limited.

Reason 3: Bank of Chengdu has industry-leading asset quality

As of 2024H1, the Bank of Chengdu can obtain a large number of healthy and stable asset investment targets due to its location advantage, and the enterprise continues to have the lowest bad rate of all commercial banks. At the same time, enterprises have maintained a high provision coverage rate for a long time, and in addition to acting as a “safety cushion” for corporate assets, in a context where corporate net interest spreads are under pressure due to low interest rates, a high level of provision represents a viable space for profit compensation.

Profit forecast:

The Bank of Chengdu is expected to continue to expand in the dividends of the regional era. Affected by policy adjustments, the net interest spreads of commercial banks are expected to stabilize, and in the context of stable profit performance, the quality of corporate assets is at the first-tier level in the industry in terms of non-performing rates and provision rates. With strong risk compensation capabilities, the Bank of Chengdu has more room to make up for profits in the face of operating pressure. In summary, we forecast the year-on-year growth rate of the company's net profit in 2024-2026 to be 5.67%, 9.90%, and 8.33%, corresponding to current BPS prices: 19.17, 20.63, and 21.79 yuan. Using the dividend discount model, the target price was estimated at 19.17 yuan, corresponding to 1.00x PB in 24 years, 21% of the current price space, giving a “buy” rating.

Risk warning: macroeconomic shocks; non-performing assets may be greatly exposed; interest pressure on asset interest rates may increase due to continued decline in policy adjustments.