Matters:

The Bank of Jiangsu released its 2024 semi-annual report. The company achieved operating income of 41.6 billion yuan in the first half of the year, an increase of 7.2% over the previous year, and realized a net profit of 18.7 billion yuan to mother, an increase of 10.1% over the previous year, and an annualized weighted average ROE of 16.42%. In terms of scale, the Group's total assets were 3.77 trillion yuan, an increase of 10.80% over the end of the previous year. The balance of various deposits was $2.09 trillion, up 11.52% from the end of the previous year, and the balance of various loans was $2.05 trillion, up 8.47% from the end of the previous year.

Ping An's point of view:

Profit growth remains steady, and revenue growth remains resilient. The net profit of the Bank of Jiangsu 24H1 increased 10.1% year on year (+10.0%, 24Q1). Revenue resilience and reserve backlash are important factors supporting stable profits. In terms of revenue, the year-on-year growth rate of the company's revenue in the first half of '24 slowed slightly by 4.56 percentage points to 7.16% from the end of the first quarter. The growth rate of other non-interest income declined mainly due to a decline in bond market earnings in the second quarter. The semi-annual growth rate was 22.3% (+74.9%, 24Q1), but the company's core business indicators bucked the trend, and the net interest income growth rate rose 2.55 percentage points to 1.76% from the first quarter. Strong credit investment and slightly steady interest spreads supported the growth rate of net interest income. In the first half of the year, the company's net revenue from the handling fee and commission business increased 11.3% year on year (-16.8%, 24Q1). Among them, agency fee revenue increased 30.7% year on year, which supported the recovery of the middle income business to a certain extent.

The rate of decline in interest spreads has slowed, and credit expansion has remained positive. Bank of Jiangsu's net interest spread level at the end of the year 2024 was 1.90% (1.98%, 23A). According to the balance at the beginning of the period and end of the period, we estimate that the company's net interest spread level for the second quarter was 1.55% (1.60%, 24Q1). The rate of decline slowed marginally. It was also inseparable from the company's debt-side efforts. The company's half-year interest-bearing debt cost ratio was 2.29% (2.40%, 23A), and we think the cost cost ratio for the second quarter decreased by 15BP to 2.18% compared to the beginning of the year. The decline in pressure is mainly related to the fact that companies adjusted their deposit term structures while reducing interest rates. Interest rates on the loan side continued to decline, in line with industry trends. Loan yields at the end of the year fell 20BP to 4.98% compared to the beginning of the year.

The positive trend in terms of scale continued. At the end of the year, the asset size increased by 14.5% (+15.1%, 24Q1), and remained stable, but the credit growth rate at the end of the half year increased 4.47 percentage points to 17.6% compared to the first quarter. Public loans were still the main driving force, with public loans accounting for 79.4% of the new loans added in the second quarter. On the debt side, the overall growth rate remained stable, and deposits increased 13.1% year-on-year (14.5%, 24Q1) at the end of the year.

Asset quality continues to be optimized, and provision levels fluctuate slightly. The Bank of Jiangsu's non-performing rate fell 2BP to 0.89% at the end of the first quarter. We estimate that the company's 24H1 non-performing loan generation rate was 1.32% (1.04%, 23A). The negative generation pressure is expected to mainly come from personal loans and small and micro loans, etc. The company's non-performing personal loan rate in '24 rose 19BP to 0.98% at the end of the half of the year. Among them, the non-performing rate for personal business loans rose 9BP to 1.58% month-on-month from the end of the first half of the year. Looking at forward-looking indicators, the company's attention rate at the end of the year 24 increased 3BP to 1.40% from the end of the first quarter, and the overdue rate increased 2BP to 1.12% month-on-month in 24Q1, in line with industry trends. It is expected that it is mainly due to retail risk disturbances. In terms of provision, the company's 24H1 provision coverage rate and loan ratio decreased by 14.0 pct/20bp to 357%/3.18%, respectively, from the end of the first quarter. Although the provision level has declined, the absolute level is still high, and the risk compensation capacity remains excellent.

Investment advice: Optimistic about the continued release of corporate location dividends and transformation dividends. The Bank of Jiangsu ranks in the first tier of domestic commercial banks. Its good location lays a good foundation for the rapid development of the company's business. On the one hand, the Bank of Jiangsu is deeply involved in the mainland, and on the other hand, actively promotes retail transformation, improving profitability and profit quality in all aspects, and is at the forefront of benchmarking the industry. We maintain the company's 24-26 profit forecast. We expect the company's 24-26 EPS to be 1.73/1.92/2.15 yuan, respectively, and the corresponding profit growth rate is 10.6%/11.1%/11.6%, respectively. Currently, the company's stock price corresponds to the 24-26 PB of 0.61x/0.55x/0.50x, respectively. We are optimistic about the continued release of the company's location dividend and transformation dividend, and maintain a “highly recommended” rating.

Risk warning: 1) The economic downturn has led to a rise in pressure on the asset quality of the industry that exceeds expectations. 2) As interest rates declined, industry interest spreads narrowed beyond expectations. 3) Increased pressure on housing companies' cash flow has led to an increase in credit risk.