Core views:

Changshu Bank released its 2024 semi-annual report. Our comments are as follows: 24H1 revenue, PPOP, and profit to mother grew by 12.0%, 22.8%, and 19.6%, respectively. The growth rates changed by +0.02pct, +2.00pct, and -0.22pct respectively compared to 24Q1. From a performance-driven perspective, growth in scale, non-interest income, and a reduction in the cost-to-revenue ratio made a positive contribution. The narrowing of net interest spreads and provision estimates were the main drag.

Highlights: (1) ABS returns stabilize loan yields, and high-cost deposit maturations drive improvements in debt costs. The company's 24H1 net interest spread was 2.79%, 4 bps narrower than 24Q1. On the asset side, the yield on 24H1 interest-bearing assets was 11 bps narrower than 23A. The main pressure was on the decline in return on investment assets. The yield on loans was only 4 bps narrower than 23A, thanks to a 17 bps increase in personal loan yield compared to 23A. Considering the sharp drop in the company's off-balance of ABS balance at the end of June '24, personal loan yields rose significantly or contributed to the ABS return. On the debt side, the 24H1 interest-bearing debt cost ratio decreased by 4 bps from the beginning of the year. The adjustment of the debt structure and the reduction in deposit listing interest rates led to a sharp drop in the cost ratio of personal time deposits. (2) Traders cashed out their profits, and other non-interest rates increased. 24H1's other non-interest income increased 52.9% year over year, mainly from investment income generated by traders cashing out. Investment income increased 95.96% year over year. (3) The cost-to-revenue ratio decreased significantly. The 24H1 cost-to-revenue ratio was 35.18%, a year-on-year decrease of 5.85pct, mainly due to the year-on-year decline in employee expenses.

Concern: (1) Demand for small and micro enterprises is weak, and public loans are strong. The year-on-year growth rate of 24H1 loans was 11.3%, down from the previous period. Structurally, retail loan growth was relatively weak in the first half of the year. As a company's moat business, the growth rate of personal loans declined markedly. At the same time, the contraction in consumer loans put pressure on retail growth. Against this backdrop, steady efforts were made to the public sector, and loans to key industries such as wholesale and retail, and commercial leasing services achieved high growth. (2) Bad generation pressure increases, and pay attention to minor risk exposures. The non-performing loan ratio at the end of 24Q2 was 0.76%, the same as 24Q1; the overdue rate was 1.54%, up 32 bps from 23A; the attention rate was 1.36%, up 12 bps from the end of 24Q1; the estimated 24H1 bad generation rate was 1.26%, up 50 bps from the previous year. The main risk exposure pressure is or in small and micro sectors, the retail defect rate at the end of 24Q2 was 0.91%, up 13 bps from 23A; the non-performing ratio of loans under 1 million (inclusive) was 0.9%, up 12 bps from 23A. The provision coverage rate at the end of 24Q2 was 538.81%, a slight decrease of 0.37pct from the end of 24Q1. The company's overall asset quality is still stable, and its risk compensation capacity is consolidated.

Profit forecast and investment advice: The net profit growth rate of the company in 24/25 is expected to be 17.36%/13.36%, EPS is 1.41/1.59 yuan/share, respectively. The current stock price corresponds to the 24/25 PE is 4.91X/4.33X, respectively, and the corresponding 24/25 PB is 0.68X/0.59X, respectively. Taking into account the company's historical PB (LF) valuation center and fundamentals, maintain the company's reasonable value of 10.91 yuan per share, corresponding to the 24-year PB valuation of about 1.1X, maintaining a “buy” ratings.

Risk warning: (1) the quality of retail assets deteriorated due to a decline in economic growth exceeding expectations; (2) deposit costs rose above expectations; (3) interest rate fluctuations exceeded expectations; (4) policy regulation exceeded expectations.