To build a “model bank for cross-strait financial cooperation” and achieve rapid growth in performance, we are committed to building a “model bank for cross-strait financial cooperation”. In recent years, the Bank of Xiamen has fully drawn on the advanced financial services and management concepts of strategic shareholders, continuously strengthened its specialized and differentiated operations, and is committed to becoming a “model bank for cross-strait financial cooperation”.
Give full play to the advantages of corporate financial institutions and Taiwanese capital backgrounds. In terms of currency clearing and retail business, multi-dimensional cooperation was carried out with the Taiwanese banking industry to establish the first Taiwanese business department and emerging finance department in the mainland banking industry to provide Taiwanese businessmen with personalized financial products such as “Three Capital Connect” and “RMB Direct Flights”. By the end of 2019, Bank of Xiamen had established agency relationships with more than 300 domestic and foreign banks, providing clearing services for major currencies such as US dollars, Euros, Hong Kong dollars, Japanese yen, Australian dollars and British pounds, with a total cross-border RMB clearing amount of 88.282 billion yuan, ranking first in Xiamen. As of 1H20, Bank of Xiamen directly served 700 Taiwanese enterprises, with a deposit balance of 3.382 billion yuan and a loan balance of 1,159 billion yuan. It has 49,000 Taiwanese retail customers and manages financial assets of RMB 4.5 billion from Taiwanese customers.
Net revenue and profit are growing rapidly. As of 3Q20, the revenue of Bank of Xiamen was 3.739 billion yuan, YOY + 23.59%; Guimu's net profit was 1,254 billion yuan, YOY +7.68%. The growth rate was 5.56 pct lower than 1H20, which is in line with industry trends. As of 3Q20, the total assets of Bank of Xiamen were 271,242 billion yuan, ranking last among commercial banks in listed cities; YOY + 14.90%, up 1.72 pct from 1H20, and is in the middle of commercial banks in listed cities.
The net interest spread is low
The low net interest spread is due to the higher cost ratio of interest-bearing debt. Bank of Xiamen's 1H20 net interest spread was 1.56%, down 6BP from 19, the lowest among commercial banks in listed cities. As of 1H20, loans and securities investments accounted for 47.32%/37.48% respectively. The low return on securities investment and high share led to a low return on interest-bearing assets; deposit costs were 2.67%, and the cost ratio of interest-bearing debt was 2.69%, all of which were high among commercial banks in listed cities.
Excellent asset quality and strong risk compensation ability
The risk indicators are excellent. As of 1H20, the non-performing loan ratio was 1.12%, down 6BP from the beginning of the year, and at a low level in the industry. Concerns and a decline in overdue loan rates. The interest loan ratio of Bank of Xiamen in 1H20 was 0.94%, down 0.28 pct from the end of 2019. The overdue loan ratio fell 2.49 percentage points from 3.54% in 2015 to 1.05% in '19; 1H20 was 1.14%, up 9BP from the beginning of the year. Furthermore, the net generation rate of non-performing loans and the migration rate of concerned loans are all low among commercial banks in listed cities.
Provision plans are being made very well. Bank of Xiamen's provision coverage rate at the end of 2019 was 274.58%, and 1H20 increased 47.92 percentage points to 322.50%. The loan disbursement ratio in 2019 was 3.24%, and 1H20 rose to 3.61%. It is in a midstream position among commercial banks in listed cities and has strong risk compensation capabilities.
Investment advice: Deeply cultivating “cross-strait finance” with excellent asset quality
The Bank of Xiamen made full use of its background advantages with Taiwanese capital and developed rapidly in Taiwan; the growth rate and share of deposits and loans continued to rise, and the balance and liability structure was continuously optimized; asset quality was excellent, and the structure of public loans was adjusted to accelerate retail transformation. Since the IPO had a certain premium, we gave it a target valuation of 1.7X 21PB, corresponding to 12.54 yuan/share, covering the “hold” rating for the first time.
Risk warning: asset quality deteriorates; deposit competition pressure is high; strategic transformation falls short of expectations