Incident: On the evening of August 28, the Bank of Qingdao released its 2024 interim report: in the first half of 2024, it achieved operating income of 7.128 billion yuan, up 11.98% year on year; net profit to mother of 2.641 billion yuan, up 13.07% year on year; weighted average return on net assets was 15.34%, up 0.17 pct year on year.

Comment:

The rate of expansion of public loan support has accelerated, and the inclusive business has made great progress. By the end of 2024H, the total assets of Bank of Qingdao were 654 billion yuan, up 15.1% year on year, and the growth rate was 2.25 pcts higher than Q1. The total loan amount was 324.4 billion yuan, up 12.3% year on year. Among them, the balance of loans to public loans was 226.2 billion yuan, up 18.0% year on year. Bank of Qingdao's loan structure continues to be optimized, and the green and blue loan business is being vigorously developed. The growth rate of technology loans, green loans, and agricultural loans has clearly exceeded the average growth rate of loans. The balance of inclusive loans was 40.4 billion yuan, a growth rate of 19.43% over the end of the previous year, higher than the bank's loan growth rate; agricultural finance has developed steadily, and special loans have been invested in agricultural industries with multiple advantages. The balance of inclusive agricultural loans at the end of 2024H was 9.693 billion yuan, a growth rate of 44.37% over the end of the previous year. On the retail side, retail loans increased 3.6% year on year at the end of 2024H, and the retail banking business achieved operating income of 1.914 billion yuan, an increase of 9.8% year over year, accounting for 26.9% of revenue.

The net interest spread for the first half of the year was 1.77%, and investment income supported the growth of mid-income. In 2024H, Bank of Qingdao achieved operating income of 7.128 billion yuan, an increase of 11.98% year on year, and a growth rate of 9.5 pct over the same period last year.

In 2024H, Bank of Qingdao's net profit to mother was 2.641 billion yuan, up 13.1% year over year. Among them, Bank of Qingdao's net interest income grew 6.0% year-on-year in the first half of 2024, mainly because it expanded the size of interest-bearing assets, seized upward opportunities in the bond market, and achieved rapid growth in investment and valuation income. The net interest spread for the first half of the year was 1.77%, down 8BP from the same period last year, mainly due to the rapid decline in asset-side interest rates. The return on interest-bearing assets in the first half of the year was 4.07%, down 13BP from the same period last year; the interest-bearing debt cost ratio for the first half of the year was 2.25%, down 8 BP from the same period last year. Net income from investments and profit and loss from changes in fair value drive growth in non-interest income. In the first half of the year, net non-interest income was 2.35 billion yuan, up 26.58% year on year. Among them, investment income and profit and loss from changes in fair value were the main components of other net non-interest income, up 38.18% year on year. Furthermore, the company achieved a major breakthrough in business revenue, achieving a 46.40% year-on-year increase in net revenue from handling fees and commissions.

The non-performing rate was reduced by 1 bp, and the margin of capital safety was more adequate. By the end of 2024H, the Bank of Qingdao had a non-performing loan ratio of 1.17%, down 1BP from the end of the previous year and flat from the end of Q1, continuing the downward trend. The provision coverage rate at the end of 2024H was 243%, an increase of 8.5 ppct compared to the end of the previous year, and the safety margin continued to increase. We believe that the Bank of Qingdao promotes clearance in key areas, enhances front-end control and resolution capabilities, and strictly controls the addition of new defects. It is expected that bad indicators will continue to improve. At the end of 2024H, the core Tier 1 capital adequacy ratio was 9.07%, an increase of 0.28 pct over the same period last year, and an increase of 0.65 pct over the beginning of the year. Mainly, the Bank of Qingdao improved its refined capital management capacity and increased profit retention to further consolidate endogenous capital supplementation; the implementation of new capital regulations and optimization of the capital burden structure also contributed.

Profit forecast: The Bank of Qingdao has excellent performance, complete financial licenses, strengthened loan support in the private sector, manufacturing, green, blue and other fields. Poor indicators continue to improve, asset quality is steady and improving, and capital is further consolidated. We forecast net profit growth rates of 12.1%, 9.5%, and 10.2% in 2024-2026, and EPS of 0.68 yuan, 0.75 yuan, and 0.82 yuan respectively in 2024-2026.

Risk factors: risks brought about by business transformation; stricter regulatory policies; risk of declining economic growth, etc.