Key takeaway

In 1H26, the company maintained high-single-digit revenue growth, while net profit attributable to shareholders of the parent company steadily accelerated. The company has long maintained a deep presence in the Chongqing local market and benefited from the development of the Chengdu-Chongqing economic circle and Chongqing"33618" modern manufacturing clusters. Local financing demand remained strong, and loanscale growth continued at a relatively fast pace. Overall asset quality remained stableand continued to improve, while the provision coverage ratio still remained at a high level. Looking ahead, profit growth is expected to maintain a year-by-year upward trend. Combined with the company's stable payout ratio, solid and attractive dividend yield, and outstanding allocation value, we maintain Buy rating.

Event

On July 20, CHONGQING RURAL COMMERCIAL BANK released its 1H26 earnings preview. In 1H26, operating revenue reached RMB15.892bn, up 7.8% YoY (1Q26: 8.4%); net profit attributable to shareholders of the parent company reached RMB8.168bn, up 6.1% (1Q26: 5.1%). In 2Q26, the NPL ratio was 1.05%, down 2bps QoQ; the provision coverage ratio declined 8.3pcts QoQ to 357.5%.

Quick Take

1. Revenue maintained relatively fast high-single-digit growth, while profit growth accelerated, in line with expectations. In 1H26, CHONGQING RURAL COMMERCIAL BANK recorded operating revenue of RMB15.892bn, up 7.8% YoY and sustaining relatively fast high-single-digit growth; net profit attributable to shareholders of the parent company increased 6.1% YoY, accelerating by 1.0pct from 5.1% in 1Q26 and continuing the upward trend. On a quarterly basis, operating revenue in 2Q26 reached RMB8.062bn, up 7.2% YoY; net profit attributable to shareholders of the parent company reached RMB4.233bn, up 7.1% YoY, with the growth rate accelerating by 2.0pcts from 1Q26, reflecting strong performance in the second quarter. Annualized weighted average ROE in 1H26 increased 0.1pct YoY to 12.0%, with profitability remaining stable. Looking ahead to the full year, leveraging its regional market and customer base advantages, the company is expected to maintain relatively fast scale growth and continue to accumulate low-cost funding while promoting the maturity of high-cost deposits and renewing them at lower rates. Net interest margin is expected to remain resilient, and net interest income is expected to continue to maintain relatively high double-digit growth. Regarding noninterest income, capital markets remained active and wealth management business gradually recovered, so fee and commission income is expected to continue improving; however, due to the high base effect, other noninterest incomemay still weigh on overall revenue growth.

2. Local demand in Chongqing remained solid, supporting relatively fast scale growth. In 2Q26, the company’s total assets reached RMB1.79tn, up 9.7% YoY; total liabilities reached RMB1.62tn, up 10.0% YoY. Both assets and liabilities maintained relatively fast expansion at a near double-digit pace. CHONGQING RURAL COMMERCIAL BANK has long maintained a deep presence in the Chongqing region, continuously aligning with key projects under the Chengdu-Chongqing twin-city economic circle initiative, while increasing credit support for Chongqing’s “33618” modern manufacturing cluster system, with strong momentum in scale growth. Against the backdrop of still solid financing demand from local key projects and industrial clusters, the company’ s credit issuance is expected to maintain relatively fast growth, supporting net interest income and subsequent profit growth.

3. Liability costs continued to improve, and net interest margin is expected to maintain the stabilizing and recovery trend. CHONGQING RURAL COMMERCIAL BANK has a relatively high proportion of time deposits. High-cost deposits accumulated in earlier periods will gradually mature and be repriced in 2026. Together with the continued release of benefits from cuts in listed deposit rates, liability costs still have room to decline further. Meanwhile, leveraging its advantages in county-level outlets and customer base, the company continued to promote demand deposits, and the deposit structureis expected to be further optimized. It is expected that the continued reduction in liability costs will effectively offset pricing pressure on the asset side and support the resilience of net interest margin.

4. Non-performing loan ratio declined further, and asset quality remained stable and improving. In 2Q26, the company’s non-performing loan ratio was 1.05%, down 2bps QoQ,continuing the stable and improving trend. The provision coverage ratio was 357.5%, down 8.3pcts QoQ, but remained at a relatively high level, indicating sufficient risk offset capability. In key sectors, the company’s previous risks related to real estate and local government financing vehicles have basically been resolved. The scale and proportion of corporatereal estate loans remained relatively low, while debt resolution efforts in the Chongqing region have also achieved phased progress. Retail risks are still expected to remain in the process of industry-wide exposure and require continued attention going forward, but the overall impact on the bank’s asset quality remains controllable. The relatively low non-performing loan ratio and sufficient provision levels provided a solid foundation for the steady recovery in the company’s profit growth.

5. Investment recommendation and earnings forecast: In 1H26, CHONGQING RURAL COMMERCIAL BANK maintained relatively fast revenue growth at a high single-digit rate, while the growth rate of net profit attributable to shareholders of the parent company further improved compared with 1Q26, with performance in line with expectations. The company has long maintained a deep presence in Chongqing, actively aligning with key projects in the Chengdu-Chongqing economic circle and Chongqing’s “33618” modern manufacturing cluster system. Local financing demand remains solid, and asset and liability scales have maintained relatively fast near-double-digit growth. On the liability side, high-cost deposits are gradually maturing and being repriced. Coupled with the continued release of benefits from lower listed deposit rates and the accumulation of low-cost deposits driven by the company’s regional deep cultivation advantages, liability costs are expected to decline further, supporting continued stabilization and recovery of net interest margin. Net interest income is expected to maintain double-digit high growth. Regarding non-interest income, fee and commission income is expected to continue improving along with capital market activity and the recovery of wealth management business. Other non-interest income still faces pressure from a high base, and is expected to continue dragging on revenue to some extent. Asset quality remained stable, with the non-performing loan ratio declining further and provision levels remaining adequate. This provides a solid foundation for subsequent profit release. Looking ahead to the full year, the company’s loan scale growth is expected to remain relatively fast, while net interest margin performance should stay resilient and revenue growth is expected to maintain high single - digit growth. As revenue growth momentum stabilizes and asset quality remains steady, profit growth is expected to continue recovering. Revenue growth for 2026-2028 is expected to reach 8.1%, 8.2%, and 8.4%, respectively, while net profit attributable to shareholders of the parent company growth is expected to rea ch 8.5%, 9.7%, and 10.2%, respectively. Profit growth is expected to trend upward year by year. The current share price corresponds to a 2026 dividend yield of 5.1% and 0.55x 2026 PB. The company maintains a stable dividend payout ratio, with a relatively high and solid dividend yield, offering outstanding allocation value. The buy rating is maintained.

6. Risks: (1) If the macro-economic recovery is slower than expected, the solvency of enterprises will be weakened, and some lower-rated enterprises may default, which will lead to the non-performing exposure risk in banks and the asset quality may decline significantly. (2) If debt risks associated with real state and local financing platforms become exposed on a large scale, it would pose a significant impa ct on bank asset quality and drastically weaken banking profitability. (3) If the expansionary credit policy doesn't meet expectations, the rapid economic growth of the company's operational regions may prove unsustainable, thereby adversely impacting the company's credit extension significantly. (4) The retail business transformation may fail to meet expectation; high volatility in the equity market may impact on the company's wealth management business.