Main points of investment
Overview of events
On March 2, 2021, Huaxia Bank announced that Beijing Investment Company would increase its stake by 1% through centralized bidding from January 28, 2021 to March 2, 2021. After increasing its stake, Beijing Investment Co., Ltd. holds a 9.5% stake in Huaxia Bank.
Core point of view
1. State-owned shareholders increase their holdings at a premium. Beijing Investment Co., Ltd. is 100% controlled by Beijing SASAC, and 20Q3 is the fourth largest shareholder of Huaxia Bank. From January 28 to March 2, 2021, the average transaction price of Huaxia Bank was 6.36 yuan, a 4% premium to the closing price on January 27. State-owned shareholders increase their holdings at a premium, highlighting confidence.
2. The business situation has improved significantly. Since 2019, Huaxia Bank's revenue has grown rapidly and its risk has improved significantly.
(1) Revenue: since 2019Q1, Huaxia Bank has maintained a revenue growth rate of more than 20% every quarter.
20Q1-3, Huaxia Bank's revenue is + 14.2% compared with the same period last year, ranking first among listed stock banks and higher than the industry average by 7pc. The high revenue growth is mainly due to: (1) the scale expansion has accelerated significantly, and the annualized compound growth rate of total assets from the end of 18 to the end of 20 years is 13%, which is faster than that of 16-18 6pc. (2) the spread has rebounded sharply from the previous month, with the spread (average daily balance) rising sharply from 1.92% of 19Q1 to 2.33% of 20Q1-3.
(2) risk: 1 the stock index is significantly improved. The true defect rate (defect rate + attention rate) significantly improved from 6.28% at the end of 2018 to 5.38% at the end of 20H1, while the overdue rate improved 153bp from 3.42% to 1.88%. (2) the quality of assets has been greatly consolidated. The overdue deviation improved from 185% at the end of 2018 to 100% at the end of 20H1. (3) the level of provision increased significantly. The overdue 90 + provision coverage increased significantly from 63% of 17H1 to 194% of 20H1. The quality of assets and the ability to offset risks have been significantly improved.
3. The valuation is at the bottom of history. As of March 5, 2021, Huaxia Bank PB 2020 was only 0.45x, a very low quantile level of 4 per cent in the past five years, with an extremely high performance-to-price ratio.
Profit forecast and valuation
The premium of state-owned shareholders shows confidence, the operation is significantly improved, and the ratio of performance to price is extremely high. It is estimated that the year-on-year growth rate of Huaxia Bank's homing net profit from 2021 to 2023 is + 6.91%, 7.18% and 7.93%, corresponding to EPS 1.30, 1.40, 1.53 and BPS 15.41, respectively. The current price corresponds to 4.92 PE,0.41/0.38/0.35 4.55 PB in 2021-2023. The target price is 9.25 yuan, corresponding to the 21-year 0.60x PB, buy rating.
Risk hint: macroeconomic stall, a sharp outbreak of bad.