BANK OF BEIJING(601169)：INTERMEDIARY BUSINESS BACK ON TRACK;ASSET QUALITY FLUCTUATING

　　1H22 results in line with our expectation
Bank of Beijing announced 1H22 results: Revenue rose 1.71% YoY and attributable net profit grew 7.88% YoY. For 2Q22, revenue increased 110.7% YoY and attributable net profit climbed 138.8% YoY. Results are in line with our expectation.
　　Trends to watch
　　NIM mildly falling; deposit cost declining. In 1H22, Bank of Beijing’s daily average net interest fell 5bp HoH to 1.77%; in 2Q22, average net interest margin (NIM) declined 4bp to 1.65% from 1Q22. The yields of interest-earnings assets (IEA) declined by 3bp more than the cost of interest-bearing liabilities (IBL). For 2Q22, average NIM fell 7bp from 2Q21, and its IEA yields fell by 8bp more than its IBL cost. Amid falling IEA yields, the firm fine-tuned its liability structure and the proportion of demand deposits to total deposits rose by 0.9ppt HoH to 50.3%, reaching a three-year high. At end-1H22, total assets increased 4.6% HoH, loans gained 6.2% HoH and deposits climbed 9.5% HoH (with relatively faster growth for the latter). Due to NIM, Bank of Beijing’s interest income dropped 0.7% YoY in 1H22. However, its interest expenses fell 1.7% YoY and, thus, net interest income increased 0.5% YoY.
　　Intermediary business back on track; wealth management and trading revenue to materialize. Bank of Beijing’s fee-income business is back on track following the restructuring of its asset management and trading businesses at end-2021. While fluctuations in capital markets during 1H22 weighed on sector earnings in 2Q22, the firm’s net fee income still grew 30.4% YoY in 1H22. Notably, its net fee income for asset management and trading related businesses rose 45.77% and 318% YoY. The significant growth of net fee income also drove a 1.71% YoY rise in total revenue in 1H22. The firm continues to develop its ecosystem for wealth management and trading, and build a comprehensive financial service system focused on wealth management, asset management, investment banking and user growth. We expect related revenue and profit growth to materialize in 2022.
　　Fluctuations in asset quality; related risks controllable. Bank of Beijing’s 1H22 non-performing loan (NPL) rate rose 18bp HoH to 1.64%, and its NPL balance increased 13.6% HoH to Rmb29.13bn. As a result, its 1H22 provision coverage ratio fell 16.57ppt HoH to 194.9%. In addition, special mention loan rate rose 49bp HoH to 1.97%, and overdue loan rate increased 80bp to 2.55%. NPL recognition accelerated and asset quality came under short-term pressure in 1H22 due to regional COVID-19 resurgence, restructuring of certain projects and a delay in disposal and write-offs. Along with risk resolution in 2H22, we expect various quality indicators of the firm to gradually improve. In addition, Bank of Beijing has relatively strong risk-offsetting capabilities. We think related risks are controllable.
　　Financials and valuation
　　We leave our earnings forecast unchanged. The stock is trading at 3.7x and 3.5x 2022-2023e P/E, and 0.4x and 0.3x 2022-2023e P/B. Considering rising risk indicators, we maintain an OUTPERFORM rating, but we cut TP 3.5% to Rmb5.35 (4.7x and 4.5x 2022-2023e P/E, and 0.5x and 0.4x 2022-2023e P/B with 29.5% upside).
　　Risks
　　Fluctuations in asset quality; increased real estate exposure; disappointing growth of fee income.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。