Review of 2021: the valuation and fundamentals of the banking sector are divided, and the weakening economy and real estate credit risk are the main reasons. As of December 14, the banking index rose by 1.82%, pb0.01% 63 times, at an all-time low. In contrast, from January to September 2021, the revenue and net profit of listed banks increased by 7.71% and 13.58% year-on-year. The revenue improved, the impairment offset back fed profits, and the fundamentals improved significantly. The bank's current valuation is mainly suppressed by concerns about the economic downturn and the credit risk of real estate enterprises. With the reduction of the low base effect, the convergence of GDP growth and the weakening of many indicators, at the same time, under the influence of the "three red lines" of real estate enterprise financing and the concentration management of real estate loans, it is more difficult for real estate enterprises to finance and the downward superposition leverage of sales volume is higher, causing credit risk.
At the policy level, the expectation of maintaining stability is strengthened, underpinning the macro-economy, which helps to resolve financial risks and market pessimistic expectations. After the 730 Politburo meeting, the regulator has repeatedly emphasized cross cyclical regulation, stabilizing credit growth, paying attention to the stable operation of the economy, and adjusted and corrected the relevant policies of real estate, "stabilizing land prices, house prices and expectations", Safeguard the healthy development of the real estate market and the legitimate rights and interests of consumers. The central economic work conference is to clarify the triple pressure of shrinking demand, supply shock and weakening expectation, put more emphasis on stable economic growth and early policy, shift fiscal policy to positive, maintain stable monetary policy, and organically combine cross cyclical and counter cyclical regulation. At the same time, it promotes the construction of affordable housing and supports the commercial housing market to meet the reasonable needs of buyers. The improvement of policy margin will help maintain reasonable and sufficient liquidity and optimize the credit environment.
The improvement of the bank's business environment is conducive to the fundamentals, and the medium and long-term value of wealth management highlights (1) stabilizing the currency and broadening the credit environment promote the release of the pressure on banks' volume and price. Benefiting from the pre investment in infrastructure, the strength of special bonds and the recovery of financing demand under the adjustment of real estate policies, the probability of bank credit recovery has increased, and some banks are expected to benefit from structural opportunities in Inclusive Finance and double carbon field; The loan interest rate is at a historically low level, and the impact of LPR repricing subsides. There is limited room for subsequent significant downward. The release of the effect of RRR reduction and deposit pricing reform is good for debt cost optimization, and Nim expects to stabilize. (2) The non interest bearing business represented by China income has become the key to bank differentiation, the bank agency business has made great efforts, and the value of wealth management has become prominent. The expansion of wealth management market, the closing of financial net worth transformation, and the multi-dimensional transformation of some banks from rates, assessment, organizational structure, customers, products, assets and financial technology have become the core driving force for the expansion and quality improvement of bank wealth management.
In 2022, the value of bank investment strategy allocation is highlighted, focusing on two main lines: (1) individual stocks of high-quality urban commercial banks. These banks are deeply rooted in economically developed areas, with controllable non-performing risks. At the same time, they are expected to benefit from the improvement of financing demand, realize the steady expansion of credit supply, support performance growth and valuation repair. (2) With the release of wealth management transformation results and leading stocks in the industry, such banks are expected to cash in the wealth management market dividend, expand the medium income space, reduce capital consumption and realize the valuation premium.
Investment suggestions and policies underpin the macro-economy, help stabilize credit growth and resolve credit risks of real estate enterprises, and help improve the business environment of banks. Considering the weakening of provision provision, the release of volume and price pressure and the rapid development of wealth management business, it is expected that the bank's performance will increase sharply in 2021 and have strong certainty, and the fundamentals will be stable in 2022, supporting the valuation repair of the sector. Current plate pb0 63 times, the valuation is in the quantile of 0.8% since 2016, and the configuration value is prominent. We continue to be optimistic about investment opportunities in the banking sector and give a "recommended" rating. In terms of individual stocks, focus on banks with significant geographical advantages and leading wealth management layout, and recommend China Merchants Bank Co.Ltd(600036) (600036), Bank Of Ningbo Co.Ltd(002142) (002142), Ping An Bank Co.Ltd(000001) (00000 1), Bank Of Nanjing Co.Ltd(601009) (601009), Bank Of Hangzhou Co.Ltd(600926) (600926) and Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) (601128).
Risk tip: the risk of deterioration of asset quality caused by lower than expected macroeconomic growth.
