Core ideas:

Bank of Ningbo has long focused on building core competitiveness, laying a solid foundation for subsequent leapfrog development. (1) Loan business: Consumer credit has become an important growth engine, and Ningyin Consumer Finance's national exhibition business attributes help Bank of Ningbo further strengthen its personal consumer credit business. 24H1 Ningyin Consumer Finance increased by 24.78% compared to the beginning of the year. Among them, the offline self-operated business developed rapidly. It is the company's core business in the future. The share increased from 0.16% at the end of '21 to 30.49% at the end of 24Q2. It mainly uses a “door-to-door receipt and pro-nuclear visit” model, which is conducive to exploring and establishing a high-quality customer base and ensuring that asset quality is at a high level. (2) Deposit business: The “Five Pillars and Two Treasures” products have retained a number of core basic customers for Bank of Ningbo, and have steadily brought high-quality deposit deposits. In June '23, the company innovatively launched the “Bobo Knows” enterprise integrated service platform, guided by the needs of the entire life cycle of the enterprise, which empowers enterprises through digital and systematic means to further preserve the vitality of the enterprise. (3) Earnings revenue business: Due to the impact of exchange rates and capital markets in the short term, the company's diversified profit center advantages are obvious. The product system and customer base management are becoming more mature. The wealth line AUM is growing strongly, and the bottom of the middle income can be expected. (4) Asset quality has gone through the cycle, write-off efforts have intensified, and it will go into battle lightly after economic recovery.

Looking ahead to 2025, Ningbo's banking performance can be expected to grow at a high rate. (1) The scale growth rate is high and the growth is sustainable. The year-on-year growth rate of Ningbo's exports remained stable during the Trump tariff 1.0 period. Considering that export business to the US is expected to be limited in key areas of the “Trump 2.0” tariff, the expansion of emerging markets can hedge the impact on the decline in US exports to a certain extent. It is expected that the tariff impact will be manageable. At the same time, Ningyin Consumer Finance's national exhibition industry supports credit growth strongly. (2) Net interest spreads are expected to steadily recover. Mortgage and medium- to long-term accounts are relatively small. The impact of stock mortgage rate adjustments and interest rate cuts and repricing is less than that of peers. The yield on newly issued loans remains at a high level, which will drive a gradual recovery in return on assets; the “Five Guards and Two Treasures” guarantee low-cost sources of debt, and the increase in the degree of industry deposit revitalization will effectively drive debt costs down further. (3) Light capital businesses such as valet transactions and wealth management will provide effective support for the growth of non-interest income. With the end of arbitrage transactions, the return of cross-border capital, and the recovery in demand for foreign exchange hedging, revenue from valet transactions is expected to resume growth; capital market recovery can be expected, and wealth management business revenue is also expected to resume strong growth momentum. (4) The surplus in the bond market has not been realized. Compared with peers, the non-interest base effect is smaller, and the pressure on performance growth is less. (5) The one-time impact of loan write-off on income tax rates has come to an end, and the tax advantage is expected to expand.

Profit forecast and investment advice: Standing at this point, I am optimistic about the medium- to long-term performance growth and valuation increase of Bank of Ningbo. I recommend paying attention. The company's net profit growth rate for 24/25 is 7.46%/15.26%, EPS is 4.04/4.67 yuan/share, respectively. The current stock price is 6.14X/5.31X for 24/25 PE and 0.82X/0.72X for 24/25 PB respectively. Taking into account the company's historical PB (LF) valuation center and fundamentals, the company maintains a reasonable value of 36.43 yuan per share, corresponding to the 24-year PB valuation of about 1.2X, maintaining a “buy” rating.

Risk warning: Exports have slowed beyond expectations. The economy is declining, and asset quality is deteriorating. Interest rate fluctuations exceeded expectations, and other non-interest rates dragged down revenue. Regional deposit competition has intensified, and costs have risen more than expected.