Preannouncement: 2021 net profit +30.7% YoY, beating our estimate

    Bank of Jiangsu preannounced its 2021 results, estimating that revenue rose 22.6% YoY, profit increased 58.1% YoY, net profit attributable to shareholders grew 30.7% YoY, and ROAE climbed 69bp to 12.6%. It estimates in 4Q21, revenue rose 17.1% YoY and attributable net profit increased 31.5% YoY. The preannounced earnings beat our expectations, as the bank's balance sheet （B/S） expanded and net interest margin （NIM） improved.

    Trends to watch Revenue continued to increase rapidly. Revenue grew 17.1% YoY in 4Q21, thanks to its B/S expansion and higher NIM.

    B/S continued to expand. The bank's total assets increased 12.0% YoY and loans grew 16.5% YoY as of end-2021, as lending demand remained strong in Jiangsu and the bank had ample projects in this province.

    Fine-tuning of the asset-debt structure continued to boost the

    improvement of NIM. Given data from the preannouncement, we estimate that the simulated NIM （revenue/average total assets） rose 9bp YoY and 11bp QoQ to 2.61% in 4Q21. We attribute the higher NIM to the firm's efforts to fine-tune the asset-debt structure - such as the moves to increase its exposure to retail assets, reduce structured deposits, and provide wealth management, transaction and trusteeship services both online and in offline outlets so as to increase current deposits.

    AM and WM businesses generated non-interest income. The

    assets under management （AUM） of the bank's retail products reached Rmb872.3bn （ranking first among listed city commercial banks）， and the AUM of its non-principal-guaranteed products was Rmb370.8bn （ranking second among listed city commercial banks） as of end-1H21. The bank plans to allocate more financial and human resources to the wealth management （WM） business to boost the growth of non-interest income.

    We expect the bank's asset quality to be on par with those of leading listed banks. 1） NPL ratio continued to improve. The bank's non-performing loan （NPL） ratio dropped 24bp YoY and 3.6bp QoQ to 1.08% as of end-4Q21. 2） Its provision coverage ratio exceeded 300%.

    The bank's provision coverage ratio rose 51ppt YoY and 12.2ppt QoQ to 307.72% as of end 4Q21. As the bank has continued to reduce NPL since its IPO and it has increased NPL disposal and provision since 2020, we think that its asset quality indicators will continue to improve in 2022, and approach the level of leading listed banks.

    Valuation and recommendation

    We raise our net profit forecast by 2.8% for 2021 （up 30.7% YoY） to Rmb19.7bn and by 5.5% for 2022 （up 21.1% YoY） to Rmb23.9bn, as its asset quality continues to improve. We introduce our earnings growth forecast of 20.6% for 2023. The stock is trading 0.6x 2022e and 0.5x 2023e P/B. We maintain an OUTPERFORM rating and a target price of Rmb9.95.

    Our TP implies 0.9x 2022e and 0.8x 2023e P/B, offering 54.5% upside.

    Risks

    Asset quality improvement disappoints.

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