BANK OF SUZHOU(002966)：SMALL YET FINE GUSU CITY COMMERCIAL BANK：STABILIZED NIM & ACCELERATED ASSET EXPANSION

　　Investment Thesis
　　Distinctive location and empowered management. Bank of Suzhou was upgraded from a rural commercial bank named Soochow Bank in 2010 to a city commercial bank, and it is the only local city commercial bank in Suzhou. In 2022, Suzhou's GDP reached RMB2.2718tn （+5.5% YoY）， ranking first among the prefecture-level cities in Jiangsu Province and sixth among the prefecture-level cities in the country. In 2023, the company will introduce a new board of directors and continue to strive towards the strategic goal of becoming "the mainstream bank in Suzhou City, the characteristic bank in southern and central Suzhou, and the best quality bank in northern Suzhou." The 14th Five-Year Plan for the financial industry in Suzhou clearly states that the financial industry urgently needs to be further strengthened and proposes that the proportion of financial industry's added value and scale should be comparable to that of Shenzhen, Guangzhou, Nanjing, Hangzhou, and Chengdu. The Suzhou Municipal Government attaches great importance to the local city commercial bank.
　　Business operations: full commission to people’s livelihood & regional development.
　　Bank of Suzhou has long adhered to the development philosophy of "small and people- oriented" based on the characteristics of numerous local private manufacturing enterprises.
　　Suzhou focuses on the four advantageous industries of electronic information, equipment manufacturing, advanced materials, and biomedicine. With strong policy support, Suzhou has nurtured leading companies in segmented fields. Though the company's loan scale is still small compared to other city commercial banks, the growth rate of its loan balance is leading the industry, reaching RMB250.6bn （+17.5% YoY） at the end of 2022. Benefiting from the post-epidemic recovery and the start of three-year plan, the loan growth rate of manufacturing industry is still considerable. We expect the loan growth rates to be 15.0%/14.0%/13.0% in 2023-2025. The company actively expands the layout of its retail consumer and deepens its wealth management transformation, further lowering its cost of liabilities, and boosting its net interest margin （NIM） level. We estimate the net interest margin to be 1.90%/1.92%/1.93% in 2023-2025. It should gradually reach the level of city commercial bank in the Yangtze River Delta region.
　　Asset quality: diminishing non-performing loans （NPL） ratio and accelerating　expansion of Balance Sheet. Bank of Suzhou's asset quality is in the upper tier of the industry, with a NPL ratio of only 0.88% and a provision coverage ratio of 533% at the end of 3Q22. The company has experienced three major adjustment and optimization stages: the NPL increase period （2011-2015）， the NPL digestion period （2015-2018）， and the comprehensive improvement period （after 2019）。 We believe that Suzhou Bank's asset quality has entered a comprehensive improvement period, and with ongoing post-epidemic recovery, the traditional advantageous manufacturing industry of Suzhou should usher in an inflection point of recovery. With the recovery of local commercial housing transaction in Suzhou, we expect the upward trend of asset quality to continue.
　　Earnings Forecast & Rating: We estimate the company's YoY revenue and net profit growth to be 10.9%/11.0%/10.4% and 21.2%/14.3%/13.4% in 2023-2025, corresponding to ROE of 12.9%/13.5%/14.0%. We initiate with a target price of RMB10.54 based on 1x P/B and a "Buy" rating.
　　Risks: 1） Economic downturn; 2） Deteriorated competition among Suzhou peers; 3） Lower- than-expected income growth.
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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。