Core Insights - Dongguan Rural Commercial Bank (9889.HK) reported a decline in both revenue and net profit for the first three quarters of 2025, with operating income at 8.611 billion yuan, down 6.6% year-on-year, and net profit at 3.794 billion yuan, down 22.26% year-on-year [2][3] Financial Performance - The bank's revenue and net profit showed signs of marginal improvement compared to the first half of the year, where operating income was 5.501 billion yuan, down 14.02%, and net profit was 2.629 billion yuan, down 22.22% [2] - Interest income and investment gains were key contributors to the bank's profitability, with net interest income at 6.557 billion yuan, down 5.74%, a smaller decline compared to the first half's 9.92% [2] - The bank's investment income surged to 1.939 billion yuan in the first three quarters, up from 1.12 billion yuan in the first half, providing significant support against the decline in interest income [2] Cost Management - The bank's business and management expenses decreased to 2.791 billion yuan from 2.937 billion yuan in the same period last year, indicating improved cost control [3] - However, the bank increased its asset impairment losses to 1.681 billion yuan, up 26.7% from 1.327 billion yuan in the previous year [3] Asset Quality - The bank's non-performing loan (NPL) ratio rose to 1.87% as of June, up from 1.84% at the end of 2024, marking the fourth consecutive year of increase [3] - The NPL balance reached 7.3 billion yuan, an increase of 323 million yuan from the previous year [3] Company Background - Dongguan Rural Commercial Bank, established from the Dongguan City Rural Credit Cooperative, was listed on the Hong Kong Stock Exchange on September 29, 2021, becoming the 13th rural commercial bank and the first local legal financial institution in Dongguan [4] - As of September 2025, the bank's total assets amounted to 769.705 billion yuan [4]

Core Viewpoint - The company reported a decline in net profit for the first three quarters of 2025, despite an increase in revenue, indicating pressure on profitability [1][2]. Financial Performance - For the first three quarters of 2025, the company achieved revenue of 1.76 billion, a year-on-year increase of 18.7%, but the net profit attributable to shareholders was 70 million, a year-on-year decrease of 29.0% [1]. - The net profit for Q3 2025 was 20 million, reflecting a significant year-on-year decline of 45.1% [1]. - The gross margin for the first three quarters of 2025 decreased by 2.4 percentage points to 13.8%, while Q3 gross margin fell by 2.5 percentage points to 12.7% [1]. - The net profit margin for the first three quarters of 2025 was 3.8%, down 2.9 percentage points year-on-year, and for Q3, it was 2.6%, down 2.6 percentage points year-on-year [1]. Cost Structure - The company experienced an increase in various expense ratios for the first three quarters of 2025, with sales, management, R&D, and financial expense ratios at 2.8%, 3.4%, 2.9%, and -0.1%, respectively, showing year-on-year changes of +1.9 percentage points, +0.4 percentage points, -0.1 percentage points, and +0.1 percentage points [1]. - In Q3 2025, the expense ratios showed similar trends with increases in sales, management, and R&D expenses, while financial expenses decreased [1]. Profit Forecast and Investment Recommendation - The company is expected to face continued pressure on profitability due to significant investment in new molds, with projected net profits for 2025-2027 at 121 million, 145 million, and 171 million, reflecting year-on-year changes of -13.1%, +19.3%, and +18.3%, respectively [2]. - The investment rating is maintained at "Accumulate" [2].

Investment Rating - The report maintains a "Buy" rating for the company [5] Core Views - The company reported a significant revenue increase of 34.5% year-on-year for H1 2025, reaching 1.16 billion yuan, although net profit decreased by 21.0% to 50 million yuan [1][2] - The growth in revenue is primarily attributed to an increase in order volume, with domestic sales showing a remarkable growth of 532.8% year-on-year [2] - Despite the revenue growth, the company's profitability remains under pressure, with a gross margin decline of 2.5 percentage points to 14.4% in H1 2025 [2] Financial Performance Summary - **Revenue Breakdown**: In H1 2025, revenue from air fryers and ovens was 980 million yuan (+25.6%), coffee machines 50 million yuan (-6.4%), and environmental appliances 10 million yuan (+405.8%) [2] - **Profitability Metrics**: The net profit margin for H1 2025 was 4.3%, down 3.4 percentage points year-on-year, while the net profit for Q2 2025 was 40 million yuan, a decrease of 33.1% [2] - **Expense Ratios**: The selling, general, and administrative expenses increased, with sales expenses at 2.8%, management expenses at 3.5%, and R&D expenses at 2.7% [2] Earnings Forecast and Investment Advice - The earnings forecast for 2025-2027 has been adjusted, with expected net profits of 138 million yuan in 2025, 166 million yuan in 2026, and 195 million yuan in 2027, reflecting a year-on-year change of -1.3%, +20.4%, and +17.7% respectively [2]