Net interest spreads increased month-on-month, and net interest income contributed the main revenue. Bank of Communications 24Q2 revenue -6.8% year-on-year, and net profit to mother -5.2% year-on-year. 24H1 revenue was -3.5% YoY, and net profit to mother -1.6% YoY. Among them, net interest income was +2.24pct year-on-year, accounting for 63.65% of operating income, which is the main component of the company's 24H1 business revenue. The company's net interest spread for caliber 24H1 was 1.29%, up 2 bps from 1.27% in 24Q1. The company plans to pay an interim dividend of 0.182 yuan per share (tax included).

The overall quality of assets is stable, and the non-performing ratio has declined markedly. In 24Q2, the company's non-performing ratio dropped slightly by 1 bps to 1.32%, and the non-performing ratio on public loans fell 11 bps to 1.54% at the end of 23. The company continues to step up the collection and disposal of non-performing assets, and promotes risk management in major areas in a steady and orderly manner. 24H1 disposed of a total of 29.59 billion yuan of non-performing loans, of which 13.2 billion yuan was substantially settled.

Total credit investment has increased, and the scale of inclusive loans has grown rapidly. As of 24Q2, loans increased 6.1% year over year.

The company focused on preparing “five major articles” to promote an increase in total credit investment and an excellent structure. Corporate loans increased 6.2% over the same period last year. Among them, medium- and long-term loans from domestic banking institutions in the manufacturing industry, “specialized and new” SME loans, green loans, and agricultural loans increased by +8.37%, +37.87%, +5.96%, and +9.34% respectively at the end of 23, all higher than the average increase in corporate loans. At the end of 24Q2, the loan balance for inclusive small and micro enterprises was 683.175 billion yuan, up 15.74% from the end of 23.

Investment advice. We forecast EPS of 1.13, 1.17, and 1.22 yuan in 2024-2026, and net profit growth rates of -1.25%, 2.77%, and 3.92% to mother. We obtained a reasonable value of 7.54 yuan based on the DDM model; according to the PB-ROE model, the 2024E PB valuation was 0.60 times (0.56 times that of a comparable company), and the corresponding reasonable value was 7.83 yuan. Therefore, a reasonable value range of 7.54-7.83 yuan was given (corresponding to 2024 PE is 6.66-6.92 times, corresponding PE is 5.64 times that of the same company), maintaining the “superior to market” rating.

Risk warning: The solvency of enterprises has declined, asset quality has deteriorated dramatically; financial supervision policies have undergone major changes.