Incident: Bank of Hangzhou released its 2024 three-quarter report. During the reporting period, the company achieved revenue of 28.494 billion yuan, +3.87% year on year; realized net profit to mother of 13.87 billion yuan, up +18.63% year on year; weighted average ROE (unannualized) was 13.51%, +0.39 pct year on year. As of the end of September, the company had a defect rate of 0.76% and a provision coverage rate of 543.25%.

The regional economy has a comparative advantage and strong ability to invest in assets. By the end of 24Q3, the company's total assets exceeded 2 trillion yuan, +9.58% from the end of the previous year; the company's total loan amount was 0.91 trillion yuan, +12.77% compared to the end of the previous year, accounting for 45.11% of loans, +1.28 pct compared to the end of the previous year; and the company's total deposit was 1.18 trillion yuan, +12.59% over the end of the previous year. In an environment where overall financing demand is weak, the company still maintains a relatively fast pace of credit investment, reflecting the comparative advantage of the regional economy and the company's strong ability to tap customer financing needs.

Interest spreads have stabilized marginally, and the growth rate of net interest income has rebounded. During the reporting period, the company's revenue was +3.87% to 28.494 billion yuan, of which net interest income and intermediary business revenue were 18.273 and 2.928 billion yuan respectively, +3.87% and -8.07% year-on-year respectively. Marginal stabilization of interest spreads led to a month-on-month recovery in net interest income growth. The estimated reporting period was 1.46%, +2bp month-on-month. Among them, the interest rate generating interest rate and interest-bearing debt cost ratio were 3.76% and 2.16%, respectively, -1 bp and -3 bp month-on-month, respectively. The stabilization of interest spreads was mainly supported by declining debt costs.

The quality of assets is excellent, and sufficient safety pads are provided. As of the end of the reporting period, the company's non-performing rate was 0.76%, the same as at the end of the previous year; the attention rate was 0.59%, +6 bps month-on-month and +19 bps compared to the end of the previous year, and the share of non-performing loans remained low in absolute terms. The provision coverage rate is 543.25%, -1.92pct month-on-month, -7.98pct compared to the end of the previous year; the loan ratio is 4.12%, -2bp month-on-month, and -13bps compared to the end of the previous year. The provision safety cushion is thick, and the risk compensation capacity is strong.

Investment advice: The Bank of Hangzhou's location advantage and development with public customers is expected to support the maintenance of a high asset growth rate, and stabilizing interest spreads will help improve net interest income; the quality of the company's assets is excellent, and there is plenty of room for backfeed. The company's revenue for 2024-2026 is expected to be 36.823, 39.132, 42.014 billion yuan, net profit due to mother of 16.906, 19.923, 22.969 billion yuan, and net assets per share of 22.94, 26.93, and 31.48 yuan. The PB valuation corresponding to the closing price on November 4 is 0.61, 0.52, and 0.45 times. Maintain a “buy” rating.

Risk warning: Economic recovery falls short of expectations, declining asset quality, and demand for credit falls short of expectations.