Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

Jiangsu Jiangyin Rural Com-A / Equity Bottom-Up

The reaction to Q219 results of <a href="https://www.smartkarma.com/entities/jiangsu-jiangyin-rural-com-a" target="_blank" rel="noopener" data-smartkarma-citation="entities:27217:1">Jiangsu Jiangyin Rural Com-A (002807 CH)</a> seems to have been pretty muted, perhaps lost somewhere in the trade war maelstrom . Given the elevated PH Score™ (our fundamental trend and value-quality indicator), we believe that this may be an underreaction. The bank reported progress in Profitability, in Efficiency, in Asset Quality, in Capitalisation, in Liquidity, and in Provisioning. A PH Score™ of 9.9 is in the top decile globally. When combined with a low RSI and an attractive Franchise Value, the bank thus stands out globally on our VFM (Valuation, Fundamentals, Momentum) model.As elsewhere in China, there are caveats. The proportion of non-core Income to PT Profit is elevated given the weight of Treasury operations. Having said that "Core" Income expanded robustly (+14% YoY in US$) while OPEX contracted by 14%, generating highly positive "jaws". In addition, Loan Loss Provisions surged despite an improvement in Asset Quality. Stage 3 Loans are now 79% provisioned according to IFRS9 while 29% of Stage 2 Loans are backed by reserves. On the plus side, Special Mention Loans continue to decrease (by 45% YoY in US$) while NPLs declined by 12% YoY in US$, especially "substandard" and "loss" Loans.Shares of <a href="https://www.smartkarma.com/entities/jiangsu-jiangyin-rural-com-a" target="_blank" rel="noopener" data-smartkarma-citation="entities:27217:1">Jiangsu Jiangyin Rural Com-A (002807 CH)</a> drifted during Q219 having spiked upwards on relatively high volume in March which coincided with the annual earnings release. Shares are way below their April 2017 peak and trade on a P/Book of 0.88x and a Franchise Value of 10%.

The reaction to Q219 results of Jiangsu Jiangyin Rural Com-A (002807 CH) seems to have been pretty muted, perhaps lost somewhere in the trade war maelstrom . Given the elevated PH Score™ (our fundamental trend and value-quality indicator), we believe that this may be an underreaction. The bank reported progress in Profitability, in Efficiency, in Asset Quality, in Capitalisation, in Liquidity, and in Provisioning. A PH Score™ of 9.9 is in the top decile globally. When combined with a low RSI and an attractive Franchise Value, the bank thus stands out globally on our VFM (Valuation, Fundamentals, Momentum) model.As elsewhere in China, there are caveats. The proportion of non-core Income to PT Profit is elevated given the weight of Treasury operations. Having said that "Core" Income expanded robustly (+14% YoY in US$) while OPEX contracted by 14%, generating highly positive "jaws". In addition, Loan Loss Provisions surged despite an improvement in Asset Quality. Stage 3 Loans are now 79% provisioned according to IFRS9 while 29% of Stage 2 Loans are backed by reserves. On the plus side, Special Mention Loans continue to decrease (by 45% YoY in US$) while NPLs declined by 12% YoY in US$, especially "substandard" and "loss" Loans.Shares of Jiangsu Jiangyin Rural Com-A (002807 CH) drifted during Q219 having spiked upwards on relatively high volume in March which coincided with the annual earnings release. Shares are way below their April 2017 peak and trade on a P/Book of 0.88x and a Franchise Value of 10%.

Jiangsu Jiangyin Rural: Catching the Sun's Rays