Trade and logistics bank is the core strategic orientation.

Zhengzhou, located in the geographical center of China, is an important railway, aviation, highway, electric power, postal and telecommunications hub city. In 18 years, the total import and export volume of Zhengzhou was 410.5 billion yuan, ranking first among the six provinces in central China, which laid a solid foundation for Zhengzhou Bank to build a characteristic bank of trade and logistics.

The scale growth rate has slowed down in the past 18 years, and 1Q19 has stabilized and rebounded.

At the end of 18, the total asset size was 466.1 billion yuan, ranking lower than the lower reaches of listed city commercial banks; yoy + 6.96%, down 12.07% from the end of 17 years, mainly due to the fact that one or 18 years led to the liquidity matching rate to reach the standard ahead of time (107.8% in 18 years, regulatory requirements reached 100% by 2020) to actively reduce the size of high-discount assets (non-standard and interbank assets); second, the shortage of core tier one capital constraints. The growth rate of 1Q19 scale has rebounded by 12.36%, and the future growth rate of assets will mainly depend on capital replenishment.

The rising momentum of net interest margin is good.

Its 18-year IAS 39 caliber net interest margin was 2.19%, up 11 bp,1Q19 from 17 years to 2.25%.

One of the reasons for its high rate of return on interest-bearing assets is that its high-yield non-standard assets account for a relatively high proportion of total assets. In 16-17, accounts receivable of Zhengzhou Bank accounted for 32.29% and 26.72% of total assets respectively, which was only lower than that of Changsha Bank in listed city commercial banks. Second, small and micro enterprises account for a high proportion of loans. In recent years, small and micro loans account for about 53% of the total loans. For 18 years, the proportion of small and micro loans is 14.3%, and the number of customers of small and micro enterprises is 56400. Third, Henan Province is located in the central region, and the loan interest rate is generally higher than that in coastal and metropolitan areas because of insufficient financial supply.

The larger increase in the defect rate is due to the tightening of supervision.

At the end of 18, the non-performing loan ratio was 2.47%, a sharp increase of 0.97 percentage points over 17 years. The deterioration of non-performing indicators is mainly due to regulatory requirements for loans 90 days overdue to be counted as non-performing. The deviation of non-performing loans of Zhengzhou Bank was as high as 171% at the end of 17 years, but dropped to 95.36% at the end of 18 years, meeting the regulatory requirements.

In addition, the net generation rate of non-performing loans added and written off in 18 years was 2.95%, an increase of 1.31 percentage points over 17 years. After the completion of one-time exposure, we expect that the defect rate may remain stable in the future.

Investment advice: the accelerated exposure of non-performing loans and the decline in future performance or improving Zhengzhou Bank's 18-year net profit is mainly due to responding to some regulatory indicators ahead of time: first, the liquidity matching ratio needs to reach 100% by 2020. Its need to reduce the high conversion rate of assets led to a decline in the growth rate of assets in the past 18 years. Second, the regulatory requirements for 90 days overdue loans are all included in non-performing loans, resulting in a large increase in the non-performing loan ratio and the need for a large provision to deal with. Judging from 1Q19's quarterly report, its asset size has begun to pick up, and its asset quality has shown a steady trend, and we believe that its future performance may improve.

We use DDM to evaluate Zhengzhou Bank, and the prediction model is divided into three stages: dominant growth period, semi-dominant growth period and sustainable growth rate. Assuming that the risk-free interest rate is 3.27% for 10-year treasury bonds, and the market risk premium is 7.12% (the average yield of the 10-year Shanghai and Shenzhen index), beta uses the one-year monthly return of Zhengzhou Bank relative to the Shenzhen Composite Index to make a regression of 1.0378. We estimate the intrinsic value of Zhengzhou Bank at 5.43 yuan per share and give it a "hold" rating.

Risk hint: asset quality has deteriorated significantly; deposit growth has fallen short of expectations.