3Q21's performance is in line with our expectations.
Guiyang Bank announced its results for the third quarter of 2021: revenue in the first three quarters was 10.92 billion yuan, down 6.7 percent from the same period last year, and 0.7 percent in the third quarter compared with the same period last year. The net profit returned to its mother in the first three quarters was 4.35 billion yuan, up 2.0 percent from the same period last year, and 0.4 percent less than in the third quarter. It's in line with our expectations.
Development trend
Spreads are down from the previous month, dragging down revenue growth. In the first three quarters, the company's net interest income decreased by 5.3% compared with the same period last year, mainly due to interest spread year-on-year, month-on-month decline of 30%, 3bp to 2.23%, weak growth of corporate deposits and higher debt costs. Deposits at the end of 3Q increased by 6.2% year-on-year, down 0.2% from the previous year. We estimate that the average interest-paying debt cost ratio increased by 11bps to 3.04% at the beginning of the period.
Scale growth is slowing, we think, or due to the company's pressure on high-risk assets. As of the third quarter, the company's total assets increased by 3.6% compared with the same period last year, of which cash and interbank assets decreased by 14.1%, loans increased by 13.6%, total liabilities increased by 2.1%, of which deposits increased by 6.2%, interbank liabilities increased by 34.2%, and bonds payable decreased by 27.9%.
Net fee income is also weak. 3Q's net handling fee income fell 33.8% compared with the same period last year, which we expect to come from fee reduction and profit reduction as well as financial management business adjustment brought about by the new rules of asset management.
Asset quality risks may still need to be further cleared. At the end of the third quarter, the company's non-performing rate fell by 3bp to 1.48% from the previous quarter, the proportion of focused loans rose by 43bp to 3.30%, and the provision coverage ratio decreased by 7ppt to 275.7%. 3Q company increased write-off efforts, the non-performing rate improved month-on-month, but the proportion of concern loans increased significantly. Looking to the future, we believe that we should continue to pay attention to the overdue of the company, the evolution of the proportion of concerned loans and the clearing of asset risk.
Profit forecast and valuation
We kept our 2021 profit forecast unchanged and lowered our 2022 profit forecast by 4.3% to $6.29 billion, mainly due to the company's revenue growth dragged down by interest rate differentials and fees. The current stock price corresponds to 0.6 times / 0.5 times price-to-book ratio in 2021 / 2022. Maintain a neutral rating and a target price of 8.12 yuan, corresponding to 0.7 times 2021 price-to-book ratio and 0.6 times 2022 price-to-book ratio, with 20.3% upside compared to the current stock price.
Risk
The risk of assets is lower than expected, and the cost of liabilities continues to rise.