Stock Analysis & Valuation Qilu Bank Co., Ltd. (601665.SS)

• Previous Close: $5.82
• Sector Valuation Confidence Level: High

Valuation method	Value, $	Upside, %
Artificial intelligence (AI)	54.70	840
Intrinsic value (DCF)	4.01	-31
Graham-Dodd Method	8.33	43
Graham Formula	22.18	281

Strategic Investment Analysis

Company Overview

Qilu Bank Co., Ltd. is a prominent regional commercial bank headquartered in Jinan, Shandong Province, serving the People's Republic of China with comprehensive personal and corporate banking solutions. Founded in 1996 and formerly known as Jinan City Commercial Bank, the institution has grown into a significant financial services provider in the regional banking sector. Qilu Bank's business model encompasses personal banking services including diverse deposit products, various loan types (housing mortgage, consumer credit, etc.), wealth management, credit cards, and insurance. For corporate clients, the bank offers deposit services, corporate financing, supply chain financing, cash management, and investment banking products. The bank also provides international banking services such as foreign exchange, trade financing, and international settlement, alongside capital market activities including interbank lending, bond investment, and derivatives trading. Operating in China's competitive financial landscape, Qilu Bank leverages its regional presence in Shandong Province while navigating the regulatory environment of China's banking industry. As a regional bank, it plays a crucial role in supporting local economic development while competing with both national and regional financial institutions in one of the world's largest banking markets.

Investment Summary

Qilu Bank presents a mixed investment profile with several notable metrics for FY 2024. The bank demonstrates solid profitability with net income of CNY 4.99 billion on revenue of CNY 8.73 billion, translating to a healthy net income margin of approximately 57%. The diluted EPS of CNY 0.80 supports a dividend payout of CNY 0.266 per share, indicating a shareholder-friendly distribution policy. However, investors should note the bank's substantial total debt of CNY 194.4 billion against cash equivalents of CNY 44.4 billion, reflecting typical banking leverage but requiring careful monitoring of asset quality. The positive operating cash flow of CNY 18.7 billion suggests strong operational performance, while the beta of 0.459 indicates lower volatility compared to the broader market, potentially appealing to risk-averse investors. The primary risks include exposure to China's property market through mortgage lending, regional economic concentration in Shandong Province, and the competitive pressures from larger state-owned banks. The investment case hinges on the bank's ability to maintain asset quality while navigating China's evolving regulatory environment and economic conditions.

Competitive Analysis

Qilu Bank operates in China's highly competitive regional banking sector, where it faces significant pressure from both larger national banks and peer regional institutions. The bank's competitive positioning is primarily defined by its regional focus on Shandong Province, which provides advantages in local market knowledge and customer relationships but also creates concentration risk. Unlike national banks with extensive branch networks across China, Qilu Bank's regional specialization allows for deeper penetration in its home market and potentially more tailored services for local businesses and consumers. However, this regional focus limits diversification benefits and exposes the bank to Shandong's economic cycles. The competitive landscape is characterized by intense competition for deposits and loans, with larger state-owned banks enjoying funding cost advantages due to their scale and implicit government support. Qilu Bank's competitive advantage lies in its ability to serve small and medium enterprises (SMEs) and retail customers in Shandong with more personalized service than larger competitors can typically provide. The bank's comprehensive service offering across personal banking, corporate banking, and international services provides a competitive edge against smaller regional peers. However, the institution faces challenges in technology investment and digital transformation compared to larger tech-savvy competitors. The evolving regulatory environment for Chinese regional banks also presents both challenges and opportunities, with potential consolidation in the sector possibly affecting Qilu Bank's competitive standing. The bank's moderate market capitalization of approximately CNY 28.4 billion positions it as a mid-sized regional player, requiring strategic focus to maintain relevance against both scale competitors and agile fintech entrants.

Major Competitors

• Industrial and Commercial Bank of China Limited (601398.SS): As the world's largest bank by assets, ICBC possesses overwhelming scale advantages with a vast branch network across China and internationally. Its strengths include low funding costs, extensive product offerings, and strong brand recognition. However, ICBC's massive size can lead to bureaucratic inefficiencies and slower decision-making compared to regional banks like Qilu Bank. While ICBC competes nationally, its presence in Shandong Province directly challenges Qilu Bank's regional dominance, particularly for larger corporate clients and affluent retail customers.
• China Construction Bank Corporation (601939.SS): CCB is particularly strong in mortgage lending and infrastructure financing, with deep government relationships that provide competitive advantages in project financing. The bank's extensive digital banking capabilities and nationwide presence make it a formidable competitor. However, CCB's focus on larger corporate clients and property development may create opportunities for Qilu Bank to serve SMEs and retail customers with more personalized service. CCB's scale enables competitive pricing that regional banks struggle to match, particularly for deposit products.
• China Merchants Bank Co., Ltd. (600036.SS): CMB is recognized for its strong retail banking franchise and wealth management capabilities, often considered the best-run joint-stock commercial bank in China. Its strengths include superior customer service, innovative digital platforms, and high-quality retail client base. CMB's weakness relative to Qilu Bank includes less focused presence in Shandong Province specifically. However, CMB's advanced technology and product innovation pose significant competitive threats to regional banks' ability to retain and attract premium customers.
• Bank of Ningbo Co., Ltd. (002142.SZ): Bank of Ningbo represents a direct peer comparison as a successful city commercial bank that has expanded beyond its regional base. Its strengths include strong SME banking capabilities, excellent asset quality, and efficient operations. Bank of Ningbo's successful transition from a local to a more regional player demonstrates a growth path that Qilu Bank might emulate. However, Bank of Ningbo's focus on the Yangtze River Delta region creates different regional economic exposures compared to Qilu Bank's Shandong focus.
• Bank of Beijing Co., Ltd. (601169.SS): As another city commercial bank that has successfully expanded, Bank of Beijing benefits from its strategic location in China's capital. Its strengths include strong government relationships, corporate banking capabilities, and relatively better asset quality than many regional peers. The bank's weakness includes high exposure to the Beijing property market. Bank of Beijing represents the competitive threat of other successful city commercial banks that could expand into Qilu Bank's territory or compete for similar customer segments.
• Bank of Communications Co., Ltd. (601997.SS): As one of China's five largest state-owned commercial banks, Bank of Communications combines national scale with particular strengths in transportation and logistics financing. Its extensive international presence provides advantages in cross-border services. However, like other large banks, it may lack the localized focus and agility that Qilu Bank can offer in Shandong Province. Bank of Communications' size enables competitive pricing but may result in less personalized service for regional customers.