Pudong Development Bank performance pick-up, asset quality continues to improve, the company actively give play to regional advantages, firmly promote business transformation, operational quality is expected to gradually improve, maintain the "overweight" rating.

Matters: Pudong Development Bank released its annual report of 2021 and quarterly report of 2022. The operating income of 2021 and 2022Q1 were-2.75% and 0.97% respectively compared with the same period last year, and the net profit was-9.12% and 3.70% respectively compared with the same period last year. The non-performing loan ratio of 2022Q1 decreased to 1.58% from the end of last year.

Performance profile: revenue and profit growth rebounded. Pudong Development Bank 2022Q1 revenue and return to the mother of net profit growth are negative to positive. 1) Revenue side: year-on-year net interest income of the company in 2021 and 2022Q1 is-1.89% and 2.46% respectively, and non-interest income is 2.21% compared with the same period last year. The return to positive growth of net interest income and the narrowing of non-interest income bring about positive revenue growth. 2) Expenditure side: 2022Q1 cost-to-income ratio increased by 0.80pct to 23.38% compared with the same period last year (2021Q1 and 2021 cost-income ratio + 3.73pcts/+2.39pcts, respectively). Compared with the higher growth rate in 2021, 2022Q1 cost control is relatively stable. 3) provision side: the credit impairment losses of the company in 2021 and 2022Q1 are-1.53% and 3.61% respectively compared with the same period last year. The continuous improvement of asset quality brings small savings in credit costs.

Interest business: the expansion of assets and liabilities is steady and the performance of interest spreads is stable. 1) steady expansion of assets and liabilities: at the end of 2021, the assets and liabilities of the company were + 2.35% and 2.11% respectively compared with the same period last year, of which the scale of loans and deposits were + 5.56% and 8.01% respectively. The total assets and liabilities at the end of 2022Q1 were + 3.52% and 2.91% respectively compared with the end of last year, of which loans and deposits were + 1.45% and 3.60% respectively at the end of last year. The expansion of assets and liabilities of 2022Q1 picked up slightly, while the growth of loans converged but the growth of interbank assets increased rapidly to ensure the steady expansion of interest-bearing assets. 2) the performance of interest margin is stable: the company's net interest margin in 2021 is 1.83%, which is slightly lower than the annualized level at the end of half a year (1bp). According to the average method at the beginning and end of the period, we estimate that the annual net interest margin of 2022Q1 is basically the same as that of 2021Q4, and the overall performance of interest margin is stable.

Non-interest business: fee income growth remains resilient, other non-interest income performance is lacklustre. 1) the growth of poundage income remains resilient: the company's annual 2021 and 2022Q1 poundage and commission net income respectively increased from-14.18% to 16.65% at the end of last year to 16.65% at the end of last year. Although the retail AUM scale decreased slightly by 2.33% compared with the end of last year, the overall median income growth remained resilient. The opening and operation of the financial management subsidiary may contribute. 2) the performance of other non-interest income is lacklustre: the company's annual non-interest income in 2021 and other non-interest income of 2022Q1 are + 8.52% compared with the same period last year, respectively. The lacklustre performance of 2022Q1 is mainly due to the change in fair value under the fluctuation of the stock and bond market.

Risk status: the asset quality continues to improve, and the historical burden is gradually cleared. 1) continuous improvement in the quality of book assets:

The non-performing loan ratio of 2022Q1 was 1.58%, down 0.03 pct from the end of last year. The balance of non-performing loans was 76.511 billion yuan, down 318 million yuan from the end of last year. The non-performing loan ratio and the balance of non-performing loans fell for nine consecutive quarters, and asset quality continued to improve. 2) the provision coverage rate remains stable: the company's 2022Q1 provision coverage rate is 146.95%, an increase of 2.99pcts over the end of the previous year, and a slight increase in provision thickness remains stable. 3) gradually clear the historical burden: the company has maintained a write-off of more than 50 billion yuan per year since 2017, writing off 81.102 billion yuan in 2021, + 15.79 percent of the same period last year. According to the company, the disposal of non-performing assets in 2021 was + 10% compared with the same period last year, of which 36 billion yuan was cleared in cash, another record high, and the settlement of historical baggage accelerated.

Risk factors: macroeconomic growth fell faster than expected; asset quality deteriorated significantly.

Investment suggestions: Pudong Development Bank's performance has picked up, asset quality has continued to improve, the company has actively given full play to regional advantages, firmly promote business transformation, and operational quality is expected to be gradually improved. We adjust the company's 2022 EPS forecast to 1.72 yuan (the original forecast 2.18 yuan), add the 2023 EPS forecast 1.88 yuan, the current A share price corresponds to 2022 0.39xPB, considering the credit cost savings caused by the improvement of the company's asset quality in the future, combined with the comparable peer valuation range distribution, give the company a target valuation of 0.52 x PB (2022), corresponding to the target price of 10.60 yuan, maintain the "overweight" rating.