Event: The company released its 2024 semi-annual report.

Performance continued to increase, and profitability further improved: 2024H1, the company achieved operating income of 5.506 billion yuan, a year-on-year increase of 12.03%, net profit to mother of 1.734 billion yuan, an increase of 19.58% year-on-year, and a weighted average ROE of 13.28%, an increase of 0.88 percentage points over the previous year. The company's 2024Q2 revenue and net profit to mother increased by 12.05% and 19.31% year-on-year respectively. The company's performance remained high, and profitability continued to increase, supported by marginal improvements in net interest income growth, recovery in earnings, and high investment returns.

Deposit cost optimization, accelerated growth of public loans: 2024H1, the company's net interest income was 4.602 billion yuan, up 6.1% year on year; the 2024Q2 single quarter increased 6.59% year on year, and the growth rate increased month-on-month; the net interest spread was 2.79%, down 4BP from the previous quarter, and remained at a high level in the same industry, mainly benefiting from strong loan yield resilience and deposit cost optimization. 2024H1's return on interest-bearing assets and interest-paying debt cost ratios were 4.89% and 2.26%, respectively, down 11BP and 4BP from the end of the previous year. Among them, the loan yield and deposit cost ratio were 5.77% and 2.22% respectively, down 4BP and 6BP respectively from the end of the previous year, and interest rates on time deposits dropped a lot. As of the end of June 2024, the company's various loans increased by 7.42% compared to the end of the previous year, and slowed down from the same period last year. The growth of public loans accelerated. As of the end of June, the increase in loans to public loans increased by 21.76%, 19.42%, and 8.68% compared to the end of the previous year; retail loans increased by 3.07%, 14.58%, and accounted for 37.11%. Among them, construction and leasing services, zero, and manufacturing loans, among which personal operating loans and consumer loans increased 4.67% and 6.49% respectively from the end of the previous year, and personal operating loans accounted for 39.37%, which is still the company's main investment in loans. The company insisted on growing small and diversified. At the end of June, loans of 10 million yuan or less for single households accounted for 72.85%. By the end of June, the company's deposits had increased by 13.76% compared to the end of the previous year.

Revenue continued to pick up, and investment income increased high: 2024H1, the company's non-interest income increased 56.69% year on year, accounting for 16.42% of revenue. The company's intermediate business revenue was 0.019 billion yuan, up 1784.27% year on year in the same period last year. The 2024Q2 single quarter increased 358.97% year on year, continuing the recovery trend. Among them, agency business revenue increased 113.23% year on year. The company's other non-interest income was 0.885 billion yuan, up 52.94% year on year, of which investment income increased 95.96% year on year.

Excellent asset quality and sufficient risk compensation capacity: as of the end of June 2024, the company's non-performing loan ratio was 0.76%, the same as in the first quarter; the share of concerned loans was 1.36%, up 12 BP from the first quarter; provision coverage rate was 538.81%, a slight decrease of 0.37 percentage points from the first quarter. Among them, the quality of public loan assets was significantly optimized, and the non-performing rate decreased by 17BP to 0.66% compared to the end of the previous year. Overall, the company's non-performing loan ratio remains low in the industry, with excellent asset quality and sufficient risk offsetting capacity.

Investment advice: The company adheres to the agricultural support small market position, and the small and micro finance moat is stable. The credit business has broad demand space, the advantages of personal business loans are outstanding, and NIM is leading the way. The quality of assets is excellent, the provision coverage ratio is superior to that of peers, and the ability to offset risks is strong. The company develops small and micro businesses through a combination of IPC+ credit factories to effectively control adverse risks and help credit expansion. At the same time, we maintain a “recommended” rating with offsite branches and village banks. In 2024-2026, BVPS 9.10 yuan/10.40 yuan/11.94 yuan will expand its business space. Combined with the company's fundamentals and stock price elasticity, the current stock price should be PB0.76X/0.66X/0.58X.

Risk warning: Risk of deteriorating asset quality due to the economy falling short of expectations; risk of interest rates continuing to decline.