Matters:
On the evening of October 23, Ping An Bank disclosed its three-quarter report for 2023. The 1-3Q achieved operating income of 127.634 billion yuan, a year-on-year decrease of 7.7%; net profit of the mother was 39.635 billion yuan, an increase of 8.1% over the previous year. The failure rate was 1.04%, and the provision coverage rate was 282.62%.
Commentary:
The narrowing of interest spreads and other non-interest income has dragged down the negative revenue growth further, but the median income performance is impressive, and the banking insurance business continues to gain strength. 23Q1-Q3 net interest income/median income/other non-interest income were -6.2%/+2.5%/-28.0%, respectively. Among them, net interest income for the Q3 quarter was 28.721 billion yuan, down 5.9% from Q2, which is still mainly due to the narrowing of interest spreads. The average daily net interest spread in Q3 was 2.30%, a further decrease of 17 bps compared to Q2 (net interest spread of 2.47%), and a total decrease of 48 bps. Mainly, the yield on interest-bearing assets in Q3 continued to fall 14 bps month-on-month due to structural adjustments and declining interest rates. In addition, debt-side costs also increased slightly month-on-month, +2 bps month-on-month. Ping An Bank continued to reduce high-yield retail assets in Q3. The average daily yield of retail loans in a single quarter fell from 6.76% in Q2 to 6.39% in Q3, down 37 bps from the previous month and 96 bps from the previous year. The debt-side deposit interest rate rose 1 bps to 2.20% month-on-month. Among them, corporate term interest rates and residents' current interest rates rose slightly month-on-month. At the same time, it is expected that the trend of regularization will still have an impact. The year-on-year growth rate of Q1-Q3 income widened to 2.5%. Among them, income from wealth management fees increased 10.4% year on year, and agent premium income increased 98% year on year. It is still the main source supporting wealth income. In addition, under a high base for the same period last year, other non-interest income increased -28% year on year, mainly due to the narrowing of fair value+exchange gains and losses.
The asset side is still actively adjusting the structure to reduce the pressure on notes and high-yield retail loans, and retail deposits continue to perform well.
In 23Q3, Ping An Bank's total assets, total loans, and total deposit balance were +6.2%, +3.8%, and +6.4%, respectively. Of these, Q2 Ping An Bank's total loans were -0.38% month-on-month. Mainly, retail loans and notes declined month-on-month, -0.9% and -2.0% respectively. Judging from the internal structure of retail loans, mortgages continued to increase month-on-month, with a quarterly increase of 18 billion dollars in Q2, which is the main force supporting the growth of retail credit. Credit cards, car loans, and new loans all had varying degrees of pressure drop, respectively -2.2%/-2.8%/-14.2% month-on-month. The company took the initiative to adjust the credit structure when the economic boom was relatively weak, increase investment in mortgage-type loans, and strengthen policy support in key areas such as inclusiveness and consumption. On the debt side, retail deposits continued to increase 2.5% month-on-month and 30.2% year-on-year. The growth rate is very impressive. It is expected to be related to the company's efforts to deposit retail deposits with licensed mortgages. It also shows that the effects of retail transformation on the debt side are beginning to show.
The overall quality of assets remained stable. The low public non-performing rate rose slightly from month to month, while the retail non-performing rate remained declining. The overall balance of non-performing loans at Ping An Bank remained stable in Q3, with only an increase of 258 million dollars over Q2. However, due to a slight decline in total denominator loans under structural adjustments, the non-performing ratio increased by 1 bps to 1.04% month-on-month.
Looking at the bad structure, in general, the non-performing ratio for public loans rose slightly by 7 bps to 0.61% from a low of 0.54% in the second quarter. With the exception of a slight increase in bad retail loans, the non-performing ratio of retail loan segments declined month-on-month. New generation risks benefited from structural adjustments that remained stable overall, and the net generation rate of bad generation in a single quarter decreased by 42 bps to 1.44% month-on-month. There was a slight increase in the share of concerned loans that are likely to be downgraded to bad. The share of focus loans in Q3 was 1.77%, an increase of 3 bps over the previous month, but it is still down 5 bps from the beginning of the year. The cumulative decline of bad and concern was 6 bps from the beginning of the year; the provision coverage rate was 282.6%, down 8.9 pct from the previous month; the loan ratio was 2.94%, down 6 bps from the previous month.
Investment advice: Ping An Bank has continued its initiative since the second quarter, strategically increasing the share of “safe assets” in retail and achieving more sustainable development. Under structural adjustments and optimization, on the one hand, retail deposits have maintained a high increase, and on the other hand, indicators such as the company's bad net generation have also been optimized. Considering the company's active deceleration and efficiency improvement, we adjusted the company's profit forecast and expected 2023E/2024E/2025E net profit growth rate to be 8.5%/12.4%/13.4% (previous values were 14.2%/13.8%/14.3%, respectively). The company's 23Q3 profit level is still up year on year. ROA is 0.98%, which has been increasing year on year for 3 consecutive years. ROE is 13.15%, which is also higher than the overall ROE of the industry. Considering that the company's performance growth rate remains relatively stable, the current stock price corresponds to 0.50X PB in '23. Overall, the target PB for 23 is 0.65X, corresponding to the target price of 13.6 yuan, maintaining the “recommended” rating.
Risk warning: Bank interest spreads are under further pressure due to insufficient economic growth momentum. Bank credit investment fell short of expectations.