IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

Arun has over 15 years’ experience covering the Technology sector. During this time, he has worked with technology start-ups and as an equity analyst in investment banks and independent research firms. He was formerly a Technology Analyst for Canaccord Genuity, Altium Securities, Espirito Santo Investment Bank, Noble Group and Clear Capital. He has a dual Master’s degree in Financial Engineering and Industrial and Operations Engineering from the University of Michigan. He obtained his Bachelor’s degree in Mechanical Engineering from the Indian Institute of Technology, Bombay. He is also a CFA charterholder.

IPOs and Catalysts/Events

Jiangxi Bank – Flattered Credit Costs Before IPO with Highest Asset Expansion of Peers

Luzhou Bank IPO Preview: Excellent Asset Quality Dulled by Slowing Growth

Bank of Gansu IPO Preview: Superior Profitability, Inferior Asset Quality

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

<p>Jiangxi Bank, a Chinese city commercial bank, has filed a draft prospectus for a Hong Kong IPO. Jiangxi Bank has superior growth and profitability metrics in comparison to its peer group of city commercial banks. Jiangxi Bank’s strong profitability is due to its high net interest margin (NIM). However, this is tempered by asset quality indicators which are worse than its peer group. Our overall view is that the IPO should be offered at a rating which is at best, in line with its peers due to the following factors:</p><ol><li>While the average city commercial banks' net profit growth declined from 14% in 2016 to 9% in H117, Jiangxi Bank’s net profit growth substantially increased from 117% in 2016 to 124% in the first nine months of 2017. The net profit growth was driven by asset growth with Jiangxi Bank’s total assets growing twice the rate of the average city commercial bank.</li><li>However, since 2015, Jiangxi’s non-performing loan (NPL) ratio is higher than the average city commercial bank's NPL ratio. In 2016, Jiangxi’s Bank NPL ratio was 20 basis points higher than the average city commercial bank.</li><li>Markedly, a lead indicator for future NPLs paints a worrying picture. Jiangxi Bank’s special mention loan ratio is high even though it declined from 9.7% in 2015 to 4.0% in the first nine months of 2017. In contrast, the average city commercial bank's ratio decreased from 2.7% in 2015 to 2.4% in 1H17.</li></ol><p>We will provide a view of valuation once the IPO price range is announced.</p>

Jiangxi Bank, a Chinese city commercial bank, has filed a draft prospectus for a Hong Kong IPO. Jiangxi Bank has superior growth and profitability metrics in comparison to its peer group of city commercial banks. Jiangxi Bank’s strong profitability is due to its high net interest margin (NIM). However, this is tempered by asset quality indicators which are worse than its peer group. Our overall view is that the IPO should be offered at a rating which is at best, in line with its peers due to the following factors:While the average city commercial banks' net profit growth declined from 14% in 2016 to 9% in H117, Jiangxi Bank’s net profit growth substantially increased from 117% in 2016 to 124% in the first nine months of 2017. The net profit growth was driven by asset growth with Jiangxi Bank’s total assets growing twice the rate of the average city commercial bank.However, since 2015, Jiangxi’s non-performing loan (NPL) ratio is higher than the average city commercial bank's NPL ratio. In 2016, Jiangxi’s Bank NPL ratio was 20 basis points higher than the average city commercial bank.Markedly, a lead indicator for future NPLs paints a worrying picture. Jiangxi Bank’s special mention loan ratio is high even though it declined from 9.7% in 2015 to 4.0% in the first nine months of 2017. In contrast, the average city commercial bank's ratio decreased from 2.7% in 2015 to 2.4% in 1H17.We will provide a view of valuation once the IPO price range is announced.

Chongqing Rural Commercial Bank (3618 HK)

Jiangxi Bank IPO Preview: Strong Growth Offset by Weak Asset Quality