Event:
On January 11, the banking sector continued to rise, with a daily increase of 1.14%, outperforming the Shanghai and Shenzhen 300 index by 2.09pct; Among them, Bank Of Chengdu Co.Ltd(601838) (+ 5.1%), Industrial Bank Co.Ltd(601166) (+ 3.7%), Bank Of Jiangsu Co.Ltd(600919) (+ 3.2%) and Bank Of Hangzhou Co.Ltd(600926) (+ 3.1%) ranked first. Since the beginning of the year, the bank index has risen by 4.43%, significantly outperforming the Shanghai and Shenzhen 300 index by 6.94pct, and recorded good absolute and relative returns.
Comments:
We continue to be optimistic about the logical context of the banking sector in the near future. Since the third quarter of 2021, although affected by factors such as increased downward pressure on the economy and pessimistic expectations on the real estate risk situation, the banking sector as a whole has shown a weak trend of shock. However, we have been firmly optimistic about the banking sector since mid December 21, mainly based on the following thinking context:
Report on December 13, 2021 “real estate” warm wind blows frequently, and bank stocks are expected to “dance in the wind”
In December 2021, there were frequent hot market events and policies, including that the regulatory voice recognized Evergrande group as a case, the central bank lowered the reserve requirement to mitigate the downward pressure on the economy, the Political Bureau meeting and the central economic work meeting transmitted the signal of “steady growth”. In our external report “real estate” warm wind blows frequently, and bank stocks are expected to “dance in the wind” on December 13, It is clearly proposed that “greater efforts to broaden credit + warm wind blowing in the real estate market will help to improve the valuation of bank stocks”.
Report on January 3, 2022: moderately optimistic about the performance of bank stocks in the first quarter
In the case of large market differences and pessimistic sentiment in late December of 21, we firmly “moderately optimistic about the performance of bank stocks in the first quarter” before the first trading day of the beginning of the year in 22, mainly based on the following considerations: ① the total amount and structure of monetary policy tools are in full force, and stabilizing credit supply is a top priority; ② The risk of real estate enterprises or phased mitigation has eased the asset quality risk that suppresses the performance of bank stocks; ③ Historically, 1q banking sector has a good trend, and the relative yield of bank stocks in January is higher.
Report on January 7, 2022 “continue to be optimistic about the strong performance of the banking sector”
On January 7, with the excellent performance of the bank index at the beginning of the year and the significant relative return relative to the gem index, we further put forward the judgment of “continuing to be optimistic about the strong performance of the bank sector”. It is mainly based on ① phased mitigation of real estate risk, and market pessimistic expectation is in the process of repair; ② The focus of “stable growth” lies in “stable investment”. Stable investment needs “wide credit”, and the market has expectations for “wide credit”; ③ The preference of funds for undervalued sectors increased, and the superimposed bank stocks usually performed well in the beginning of the year.
At the current time point, we are still firmly optimistic about the performance of the banking sector in the future; Among them, the certainty of January may be relatively higher than 1q. The main analysis logic is as follows:
1) stabilizing credit supply is a top priority, and the market has expectations for “wide credit”
The total amount and structure of monetary policy tools should work together, and stabilizing credit supply is a top priority. Since December 21, the central bank has continuously reduced reserve requirements and interest rates and increased open market operation in order to maintain a more abundant liquidity environment. According to the spirit of the central bank’s 2022 working meeting, the next stage will “actively launch monetary and financial policies conducive to economic stability”. It can be expected that the overall liquidity environment of the market will remain loose without significant improvement in the current insufficient effective credit demand. In December 2021, the performance of new credit enhancement loans in the banking industry is expected to be flat, and the beginning of this year
The appeal of “enhancing the stability of total credit growth” is particularly urgent. It is expected that in 1q and the whole year of 2022, banks will mainly focus on real estate, infrastructure, manufacturing, green credit, inclusive small and micro enterprises, etc. Recently, according to the data released by the China Banking and Insurance Regulatory Commission, the credit development points in 2021 mainly include manufacturing, high-tech industries, green loans, Pratt & Whitney microenterprises, etc. By the end of 2021, the year-on-year growth rates of CCB’s green loan and Pratt & Whitney’s small and micro balance were 45.7% and 31.6% respectively; China Everbright Bank Company Limited Co.Ltd(601818) the year-on-year growth rate of the balance of medium and long-term loans, inclusive loans and green loans in the manufacturing industry was 46%, 27% and 20% respectively. It is expected that the “stable credit” of banks in 1q and throughout 2022 will mainly focus on real estate, infrastructure, manufacturing, green credit, inclusive microenterprises, etc. 1q stable economic growth requires effective and rapid investment, which will stimulate the credit demand on the investment chain. Although there is still insufficient effective demand at this stage, the market still has expectations for “wide credit”, which is the main reason for the good performance of real estate infrastructure chain stocks since the beginning of the year.
2) the real estate risk is gradually mitigated, and the market pessimistic expectation is in the process of repair
At this stage, the “policy bottom” of real estate financing has been realized, and the financing of real estate enterprises is gradually recovering. Strong policy intervention helps to block the active “lying flat” thinking of real estate enterprises, and weak qualified real estate enterprises are actively carrying out “self-help”. On the other hand, for financial claims, regulators also intend to arrange financial institutions to negotiate with enterprises for debt extension or restructuring. In December, the people’s Bank of China and the China Banking and Insurance Regulatory Commission issued the notice on doing a good job in M & a financial services for risk disposal projects of key real estate enterprises, encouraging financial institutions to carry out M & A loans, increase bond financing support, and help clear risks in the real estate industry. More importantly, as the first quarter involves important time nodes such as migrant workers\’ salary payment before the Spring Festival, local “two sessions” and national “two sessions”, the time window for passive default of real estate enterprises is narrow, and the main responsibility of the party and government for resolving major financial risks is consolidated. We expect that the real estate financing situation will be better than the market expectation in 1q, It is more important to stabilize real estate sales in the first quarter.
On January 6, the China Banking and Insurance Regulatory Commission released the data that the real estate loans increased by 8.4% year-on-year at the end of November 2021; Previously, the people’s Bank of China disclosed that the year-on-year (+ 11.3%) and month on month (+ 1.1%) growth rate of housing mortgage loan balance at the end of November were 0.3pct higher than the corresponding growth rate at the end of October. It is expected that the development loan will still have a negative growth in November. In the future, further real estate stability maintenance policies may still be on the way. 1q retail mortgage loans are expected to increase year-on-year. The policy focuses on stabilizing real estate sales, restoring the sustainable operation ability of real estate enterprises and repairing the pessimistic expectations of the market. As a result, the pressure on the asset quality of housing loans on the bank’s balance sheet will be released.
3) the performance express in 2021 reported good news one after another, and 1q22 revenue growth was strongly supported
The disclosed performance letters of listed banks in 2021 have performed well. As of January 11, four banks, namely Societe Generale, Sunong, Jiangsu and Changshu, had issued performance express reports. On the whole, they showed the following characteristics: first, the revenue growth rate was generally stable, and the profit growth rate was higher than that of 3q21; Second, the asset quality continued to improve, with the non-performing rate slightly down or flat quarter on quarter. At the same time, the provision coverage increased quarter on quarter, and the risk offset ability was enhanced. According to the third quarterly report and 4q operation of listed banks in 2021, in the first three quarters of 2021, the operating revenue, net profit before provision and net profit attributable to parent of 37 A-share listed banks increased by 7.7%, 6.8% and 13.6% respectively year-on-year, with the growth rate increased by 1.8pct, 1.9pct and 0.6pct respectively compared with the interim report. The growth rate of revenue and profit increased quarter on quarter, and the growth difference of revenue and profit tended to converge. In 4q21, although the economic downward pressure has a certain drag on the effective credit demand, the cross cycle arrangement helps to continue the “stable volume and price” of credit supply, and the revenue side has a stable foundation.
Meanwhile, as the base effect subsides, the credit cost may rise, and the growth rate of revenue and profit may be poor or further converge.
Under the expectation of “a good start”, the year-on-year growth rate of bank 1q revenue is expected to increase. Considering the general “good start” effect of banking credit, most banks follow the quarterly rhythm of “3322”, and even some banks\’ 1q credit can reach 40% of the whole year. In the evolution process of “wide credit” from 4q21 to 1q22, the driving factors of banking income scale are relatively optimistic, which will drive the growth of net interest income. Considering that Nim is basically stable in 2021, 1q22’s revenue growth will be faster than 1q21. At the same time, under the cross cycle arrangement, it is expected that the banking sector will have strong support for the annual revenue in 2022, the profit growth rate is slightly higher than the revenue by about 2 percentage points, and the fundamentals and valuation of high-quality banks will continue to show “the strong will always be strong”.
4) the preference of funds for undervalued sectors has increased. Historically, bank stocks usually performed well at the beginning of the year
As of January 11, Pb valuation was in the wind class I industry with a quantile of more than 80% in recent ten years, with a decline of – 3% – 8% since the beginning of the year; Banks, real estate and other sectors with low valuation recorded better absolute and relative returns, showed signs of rotation of funds, and increased preference for undervalued sectors. At present, the overall valuation of the banking sector is only 0.65 times Pb (LF), which is at a historical low. From the performance of the banking sector from 2011 to 2021, it can be clearly seen that 1q banking sector has a good trend in most years; Especially in January, the banking sector recorded a higher winning rate of relative returns.
Further observing the market in recent five years, in addition to the abnormal impact of the epidemic in 2020, the banking sector recorded good absolute and relative returns at the same time in January. Specifically, from 2017 to 2019 and January 2021, the banking sector increased by 4.5%, 12.5%, 8.2% and 7.5% respectively, and the corresponding industry sectors ranked 3 / 30, 2 / 30, 4 / 30 and 3 / 30, and the corresponding relative returns of Shanghai and Shenzhen 300 index were 2.1pct, 6.4pct, 1.9pct and 2.9pct.
5) investment logic of bank shares: 1q suggests focusing on three main lines
Since the beginning of 2022, the bank index has risen by 4.43%, significantly outperforming the CSI 300 index by 6.94 PCT, and the growth of some stock targets has exceeded 10%, such as Bank Of Chengdu Co.Ltd(601838) (+ 15.9%), Industrial Bank Co.Ltd(601166) (+ 12.3%), Bank Of Jiangsu Co.Ltd(600919) (+ 10.8%), Postal Savings Bank Of China Co.Ltd(601658) (+ 10.2%), etc. we are still relatively optimistic in the future. 1q investment logic suggests focusing on three main lines:
1) the rebound main line caused by the weakening of real estate risk suppression. With the restoration of pessimism in the real estate market, the listed banks that were obviously impacted by the real estate market in the early stage have been adjusted, and the bottom trend of stock price is more obvious, which is expected to obtain excess returns in the future. Focus on Industrial Bank Co.Ltd(601166) , Ping An Bank Co.Ltd(000001) , China Merchants Bank Co.Ltd(600036) .
2) the main line of sound operation of high-quality regional local banks. We always recommend high-quality listed banks in Jiangsu and Zhejiang. These banks benefit from the improvement of regional economic environment. In the future, credit supply is expected to continue “volume increase and price stability”, and are expected to maintain high-quality asset quality. Focus on Bank Of Chengdu Co.Ltd(601838) , Bank Of Hangzhou Co.Ltd(600926) , Bank Of Jiangsu Co.Ltd(600919) , Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) , Bank Of Nanjing Co.Ltd(601009) .
3) the main line of “Touyan” bank with stable credit supply in the beginning of the year. When the problem of insufficient effective demand may continue, the credit extension may evolve from a “good start” to a “differentiated” division at the beginning of 2022. In the beginning of the year, the bank is expected to give play to the “head goose” effect, focusing on Postal Savings Bank Of China Co.Ltd(601658) , China Construction Bank Corporation(601939) .
Risk tips:
\u3000\u30001. The increasing downward pressure on the economy may drag down the fundamentals of banks, and regional risk factors may further accumulate;
\u3000\u30002. In the short term, the credit risk release of weak qualified real estate enterprises will still be an important variable, but under the package policy arrangement, the risk is expected to be controllable as a whole.
