Optimize deposit costs and increase reserves in a forward-looking manner
Net profit, revenue, and PPOP from January to June were +0.5%, +9.5%, and +9.5%, respectively. The growth rate compared to January-March -0.7pct, +7.1pct, +6.1pct, and +6.1pct. The increase in revenue growth mainly benefited from an increase of 18 bps in interest spreads driven by deposit cost optimization. The January-June annualized ROE and ROA were -2.24pct and -0.03pct to 12.08% and 0.98% year-on-year. We maintain the 22-24 EPS forecast of 1.69/1.79/1.93 yuan, and the 22-24 BVPS forecast value of 14.34 yuan, corresponding to 0.39 times PB. Comparatively, the company Wind unanimously predicted an average PB value of 0.78 times in '22. The company has plenty of room for growth in the province, but given the rising risk and rising credit costs in some industries, potential risks are still being clarified. We gave a target PB of 0.55 times for 22, and adjusted the target price from 8.03 yuan to 7.89 yuan to maintain the “increase in holdings” rating.
Steady investment of assets, optimization of deposit costs, rising interest spreads month-on-month
Net interest income from January to June was +10.1% year on year, and the growth rate compared to +9.2pct in January-March was mainly driven by increased interest spreads. Total assets, loans, and deposits at the end of June were +5.5%, +9.0%, and +4.9% compared to +1.3pct, -0.4pct, and +1.8pct at the end of March. Credit investment is mainly driven by the impulse on equity and notes. Among the new loans added in Q2, the proportion of new loans to the public sector, notes, and retail sales was 56.6%, 45.1%, and -1.7%. The net interest spread from January to June was +18 bps compared to January-June and +10bp to 2.36% from '21; the return on interest-bearing asset and loan yield in January-June compared to 21-13 bp, -18 bp to 4.89%, 5.55%, and the cost ratio of interest-bearing debt and deposit cost ratios compared to 21-23 bp and -20 bp to 2.67% and 2.59%. Among them, the cost ratio of savings time deposits dropped significantly by 97 bps compared to '21, or benefited from high-interest deposits, which improved deposit costs significantly.
Strictly identify assets, increase write-off and disposal, and increase provisions in a forward-looking manner
The non-compliance rate, attention rate, and provision coverage rate at the end of June were 1.64%, 3.42%, and 256%, compared to +3 bp, -28 bp, and -5 pct at the end of March. The non-performing rate in the lodging and catering industry and the wholesale and retail industry was +248bp and +58bp to 6.16% and 3.06% compared to the end of '21, mainly affected by the epidemic and macroeconomics. Asset classification was strictly determined, and the degree of deviation from bad defects overdue for 90 days or more was 81%, compared to -10pct at the end of '21. Increased inventory clearance efforts, and 22H1 wrote off and disposed of $1.24 billion, +64.0% year on year. The annualized bad generation rate in Q2 increased 1.67 pct to 2.63% compared to Q1. Annualized credit costs in Q2 were compared to Q1+1.3pct to 2.82%, and credit impairment losses in the first half of the year were +27.3% year-on-year, mainly due to increased credit provision requirements in the outlook.
Middle income increased negatively year on year, retail transformation progressed
Mid-term revenue in January-June was -12.7% year-on-year, and the growth rate was +2.5pct compared to January-January. The median revenue/revenue was 4.1%. Mainly, it was dragged down by the decline in investment bank revenue due to reduced fees, concessions and non-standard pressure drops. Agency and financial management revenue was +12.2% and +10.9% year-on-year. Retail transformation continues to advance, with savings deposit balances +15.5% year-on-year, and savings deposits/total deposits +2.6pct to 42.9% compared to the beginning of the year. Other non-interest income from January to June was +18.7% compared to the same period last year, mainly benefiting from the increase in investment income from transactional funds. The capital adequacy ratio at the end of June and the core Tier 1 capital adequacy ratio were 14.03% and 11.87% respectively, compared to -0.16pct and -0.15pct at the end of March.
Risk warning: The continuation of the economic downturn has exceeded expectations, and the deterioration in asset quality has exceeded expectations.