The banking sector is currently in the "triple bottom" stage of policy bottom, valuation bottom and performance bottom, so we are bullish on the banking sector in an all-round way:

1. Policy bottom:Real estate risk and epidemic situation are the two mountains that have suppressed the sector in the past two years, but the repressive factors have been marginally alleviated: ① real estate support policies continue to be introduced and efforts continue to increase. Recently, the "16 articles on Financial support for Real Estate" has been launched, emphasizing the package of financial support to real estate, and it is expected that real estate risks will be safely resolved, thus reducing the asset quality pressure of banks; ② epidemic prevention policy dynamic optimization, recently landed "optimized prevention and control 20", more emphasis on scientific precision, regulation layer by layer. It is expected to effectively reduce the disturbance of the epidemic to economic activity and boost the market demand for bank credit.

two。 Bottom of the estimate:Since the beginning of 2022, the banking sector has fallen 17%. The current dynamic valuation is only 0.45 times PB, an all-time low, and the banking index is the lowest since 2015. As for individual stocks, the current valuations of the leading targets represented by China Merchants Bank and Ningbo Bank are the lowest since 2015. As a result, both sectors and individual stocks have fully digested the possible disadvantages at the pricing level, including the loan repricing of Q1 in 2023.

3. Bottom of performance:Q3 is the bottom of the sector's revenue growth in 2022, and Q2 will return to the range of magnanimous expansion in 2023: ① expects Q4 in 2022 to Q1 in 2023 to stabilize revenue growth. Q4 is expected to pick up marginal revenue growth, boosted by a retreat from a high base and a rebound in non-interest income growth. However, due to the net interest differential pricing pressure on Q1 in 2023, there may be some fluctuations in revenue growth, which has been fully reflected in the stock price in advance; ② expects Q2 revenue growth in 2023 to start an upward trend, mainly based on the fading of base pressure, the maintenance of rapid table expansion and the narrowing of interest spreads.

Investment advice:Bullish on the banking sector, individual stocks choose to grasp two logical main lines:

1. Traditional leaders: Ningbo Bank, China Merchants Bank, Ping an Bank.As the leading targets of the sector, the share prices of these banks have been the most suppressed at the macro level, so they have benefited most from the marginal improvement in real estate and the epidemic situation. In addition, these banks were originally institutional heavy stocks, and the micro trading structure was more crowded. After the decline in share prices, the trading structure tends to be healthy.

two。 High quality small banks: Suzhou Bank, Chengdu Bank, Jiangsu Bank, Changshu Bank.On the one hand, the overall prosperity of these banks continues to be at a high level, and under the support of the regional economy β and the need for capital replenishment, the performance certainty and sustainability are very strong; on the other hand, the strong small banks in the early stage have fallen, and the valuation has returned to a very cost-effective position.

Risk Tips:The economy is falling faster than expected; the effect of the policy is not as expected.