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Zhongyuan Securities Chen Xi

Performance and financial indicators.

The weakening of interest margin drive led to the slowdown of profit growth. The company's net profit increased by 35% in the first three quarters, and the main contributing factors were the growth of interest bearing assets, the increase of interest margin and the reduction of cost income ratio, which contributed 24 percentage points, 7 percentage points and 4 percentage points respectively. The growth rate of net profit in the third quarter report was 5 percentage points lower than that in the middle report of 40%. The main reasons were as follows: first, the driving force of interest margin was weakened, which led to the decline of the growth rate of net interest income; Secondly, the provision in the third quarter of last year was close to zero, while the provision in the third quarter of this year was relatively normal, which led to the rapid rise of credit costs year-on-year. On a month on month basis, the operating income in the third quarter decreased by 9.7% compared with that in the second quarter, of which the net interest income declined by 3.9% due to the month on month decline in interest margin, while the income from intermediary business dropped by 29% on a month on month basis.

The deposit growth rate far exceeded the industry level, interbank assets continued to shrink, and bond assets increased significantly. At the end of the third quarter, corporate deposits increased by 20% compared with the beginning of the year, much higher than the industry's growth rate of 12%. According to the information disclosed in the report, structural deposits and margin deposits contributed significantly to the growth. In the third quarter, corporate deposits grew 2.3% month on month, also higher than the industrial growth rate of 1.9%. In terms of loans, the total amount at the end of the third quarter increased by 12.1% compared with the beginning of the year, and the industry growth rate was 12.5%, basically the same as the industry growth rate; In the third quarter, the growth rate was 2.5% month on month, lower than the industry growth rate of 3.4%. After contracting in the second quarter, the scale of inter-bank assets increased by 7.6% again in the third quarter, mainly due to the rapid decline of redemptory financial assets for sale, while the scale of bond assets increased by 41.1% month on month. The decrease of redemptory financial assets for sale mainly reflects that the demand for bill assets to be listed is decreasing at present, while stricter supervision also has an impact on business development.

In the third quarter, the month on month decline of interest margin was large. The calculated value of the company's net interest margin in the third quarter was 2.49%, a decrease of 20BP compared with 2.69% in the second quarter, which was relatively large. In addition to the impact of the narrowing of deposit loan spreads, we believe that the substitution of bond assets for high-yield interbank assets in the third quarter is another important factor. At the end of the third quarter, the interbank assets accounted for 23% of the interest bearing assets, a decrease of 3 percentage points compared with the end of the first half of the year, while the proportion of bond assets rose by 4 percentage points to 15% compared with the end of the first half of the year. In the fourth quarter, the deposit loan interest margin of the company will still be in a downward trend, and the contribution of the interest margin to the year-on-year growth of net profit will continue to weaken.

The year-on-year growth rate of intermediary business income slowed down, and the third quarter saw a negative month on month growth. In the first three quarters, the company's intermediate business income increased by 24.8% year on year, which was significantly lower than the 29.9% in the mid report. Compared with the second quarter, the third quarter showed a significant negative growth of 29.4%. In the previous two years, the third quarter showed a negative growth, but this year's decline was also significantly higher than that in previous years. In the first three quarters, the proportion of intermediate business income in operating income was 15%, slightly lower than the same period last year.

Non performing loans are accelerating. The balance of non-performing loans of the company was 6.98 billion yuan, an increase of 1.25 billion yuan over the beginning of the year, and an increase of 730 million yuan over the end of the first half of the year. The net generation rate of non-performing loans in the third quarter was 0.07% (not annualized), higher than the level in the first and second quarters, and non-performing loans showed a trend of accelerated growth. At the end of the third quarter, the non-performing loan ratio was 0.70%, up 0.06 percentage points from the beginning of the year, the provision coverage rate was 341%, and the loan allocation ratio was 2.39%. The credit cost in the first three quarters was 0.47% (annualized), an increase of 0.11 percentage points over the same period last year.

Capital adequacy ratio increased. At the end of the third quarter, the company's capital adequacy ratio was 11.21%, 0.64 percentage points higher than that at the beginning of the year, and the core capital adequacy ratio was 8.24%, 0.35 percentage points higher than that at the beginning of the year.

Give the company a "overweight" rating. It is estimated that the company's EPS in 2012 and 2013 will be 0.58 yuan and 0.61 yuan respectively, corresponding to PE4.62 times and 4.39 times. The company's valuation is low, but it lacks unique performance drivers, so the company will be rated as "overweight".

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