Huaxia Bank disclosed its annual report for 2020 and quarterly report for the first quarter of 2021, and its Q1 performance slightly exceeded expectations, ranking fourth among share-holding banks in terms of growth rate. 2020A revenue, PPOP, home net profit increased by 12.5%, 16.2%,-2.9% under the influence of 2021Q1 base, the revenue and PPOP growth rate decreased by 12.4pcts, 12.3pcts to 0.1%, 3.9%, respectively, while the net profit growth rate increased by 13.5pcts to 10.6% under the counter-feeding of provisions. The core driver of Q1 performance exceeding expectations is provision back-feeding, the company's stock risk disposal has achieved initial results, bad net generation has decreased compared with the same period last year, and the provision coverage rate has increased significantly in the context of provision back-feeding profits; the main drag on Q1 performance is the narrowing of net interest margin and the expansion of cost-income ratio; the increase in cost-to-income ratio is affected by last year's base, but the trend of interest spread needs investors to focus on.
The rising cost of debt has led to a decline in Q1 spreads compared with the previous month. After caliber adjustment, the net interest spreads of 19A, 20Q1, 20A and 21Q1 are 2.51%, 2.64%, 2.59% and 2.45% respectively, and the 20A spread increases by 8 bps compared with the same period last year. The core is that the downward interbank cost drives the decrease of debt cost (18bps) is greater than that of asset income (7bps). On the other hand, 20Q1 is the upward trend of debt cost, and the downward return on assets leads to the contraction of interest margin by 14bps. in the follow-up, we need to focus on the trend of deposit competition and whether the downside dividend of interbank cost can continue.
Asset side: Q1 asset investment slowed down, the proportion of loans increased. At the end of the first quarter, interest-bearing assets increased by 2.0 per cent compared with the beginning of the year, the pace of release slowed from last year (+ 2.9 per cent at the beginning of the year), loans increased by 2.5 per cent from the beginning of the year, and the share of interest-bearing assets rose to 62.3 per cent, an increase in 0.27pcts compared with the previous year. Debt side: deposit growth shows pressure, increase the allocation of active debt. Q1 deposits increased by 1.1 per cent compared with the beginning of the year, interbank liabilities (including NCD) increased by 3.6 per cent over the beginning of the year (of which interbank certificates of deposit decreased by 0.3 per cent), interest-bearing liabilities increased by 1.8 per cent over the beginning of the year, deposit growth was under pressure, and companies added non-certificates of deposit interbank liabilities.
Stock risk management has achieved initial results, and the provision coverage rate has finally returned to more than 160%. At the end of the first quarter, the non-performance rate was 1.79%, down 1 bps from the previous quarter, the concern loan rate was 3.37%, and 6pbs was down from the previous quarter.
20Q1 estimates that the bad generation rate is 0.87%, which is 0.96 17bps lower than that of 20A and lower than that of the same period last year. At the end of 20A, the overdue loan rate was 1.96%, which was higher than that reported in the China report, but the identification of non-performing loans was stricter, and the ratio of overdue loans / non-performing loans fell sharply by 31.3pcts to 42.6% for more than 90 days.
The ability to offset risks has increased significantly, and the provision coverage rate has returned to 161.6%, an increase of 14.4pcts on a month-on-month basis.
Investment advice: initial results have been achieved in stock risk disposal. The fundamental inflection point needs to carefully follow the retail transformation and integrated business strategy. We expect the debt side to continue to improve and the net interest margin to stabilize. It is estimated that the company's net profit growth rate of homing will be 8.4%, 10.3%, 1.44 / 1.60 yuan per share and 15.54 million 16.87 yuan per share, respectively. The current A share price will correspond to that of 21Universe 22 years PE 4.32X PE 3.90XJI PB is 0.40X/0.37X. We give the company a 2021 PB valuation of 0.5X, with a reasonable value of 7.17 yuan per share, and maintain a "buy" rating.
Risk tips: the economy has declined more than expected, asset quality has deteriorated significantly, and regional deposit competition has intensified.