Agricultural Bank: County finance still has bright prospects

At the end of 2009, ABC was the third largest commercial bank in China. "Three rural business" is the characteristics of ABC, AgBank county-level assets accounted for 36.4% of the total, in the next few years will continue to improve. AgBank's county-level assets grew slightly faster than the entire bank, and revenue and profit growth rates were much higher than the entire line, while asset quality and the overall gap were narrowing, but the deposit-and-loan interest rate difference after deducting the credit cost was lower than the whole line. In the mainland, the county economic growth rate is higher than the whole country, but the development of county finance lags behind the development of economy. Large commercial banks dominate the county-level deposit and loan business, and nearly 60% of county loans are concentrated in the three economic circles, but the region with the highest market share is in the west. Agricultural Bank in the county area to benefit from urbanization and industrialization of the public customers, county residents, individual merchants, affluent farmers and other high-end personal customers, outlets concentrated in the city and county.　　According to the county-level business development plan, Agricultural Bank in the past three years in rural households loans and infrastructure loans will be strengthened. From the perspective of international experience, cooperative finance and multi-level legal person holding is the mainstream model of international Agricultural Bank. The cooperative finance is the main body of the German rural financial system, and the French Agricultural Credit Bank adopts the multi-level corporate structure with the bottom-up level holding; the most notable feature of ABN Amro is the two-tier model of central banks and members, which is fully involved in the chain of agricultural industry. From the international experience, according to the common demand from the bottom up, the formation of the local banks with the right to operate a joint entity, can minimize the operation chain, simplifying decision-making process.　　Agricultural finance should be fully integrated into the agricultural industry chain, the agriculture-related banks may not be able to obtain the same profitability of city banks. Agricultural Bank of the county finance business chain, is still in accordance with the Headquarters-level branch-level two branch-branch-network structure, the level of more, the independence of the branches are still relatively limited, and in a legal system under the establishment of two management system, will also increase management costs. But the cooperative finance and the multi-level corporate holding mode is not realistic for ABC.　　ABC has shortened the county financial decision-making chain through classified management and delegation, but it still needs to be perfected. The challenge of "three rural" finance is that the county business is not the Agricultural Bank's patent, in the economically developed counties, the competition is more and more fierce. The profit margin of city finance has already entered the medium and long downward channel, the county finance must become the new battlefield of the next round bank competition.　　ABC must firmly grasp the first advantage in the county, improve the "three rural" financial management mechanism, especially in the rapid economic growth and economic development of the county area, AgBank will be expected to pass a new round of opportunities to narrow the gap with other big lines. If ABC can take full advantage of the flexible and risk-controllable balance of county Branch under the level of legal person system, the county finance still has bright prospects, and it is expected to make use of the advantages of the county area to narrow the gap with other banks. In the next 2-3 years, AgBank is growing better than other big lines, and the main drivers include faster asset expansion, higher spreads, more cost and lower credit costs. We expect AgBank's earnings growth from 2010 to 2012 to be 36.5%, 32.5% and 22.0, respectively.%。 Reasonable dynamic PB in 1.8 to 1.9 times times, corresponding to the dynamic PE11.1 to 11.7 times times, a reasonable share price of 3.59 to HK $3.79, given a "neutral" rating.