Event: ping an Bank released its quarterly report for 2023, with operating income of 127.63 billion, year-on-year increase of-7.7%, net profit of 39.64 billion, year-on-year increase of 8.1%, non-performing loan ratio of 1.04%, month-on-month + 1bp, provision coverage of 283%, a decrease of 8.9pct.

The decline in 3Q23 revenue and profit growth is mainly to reduce high-risk and high-yield assets and consolidate the foundation. 1) 3Q23's revenue was-15.6% year-on-year, with a month-on-month decline of 10.6pct, mainly due to the active pressure drop of high-yield and high-risk assets such as new loans, credit cards, auto finance and other high-income and high-risk assets in the interest-bearing business, resulting in a month-on-month decline in loan growth and interest spreads; 2) 3Q23 net profit was-2.2% year-on-year, with a decline of 19pct, non-performing ratio + 1bp to 1.04%, and provision coverage decreased from 8.9pct to 283%.

Retail loans were restructured, with quarterly spreads falling 17bp to 2.30% from the previous quarter. 1) Asset side: the rate of return on interest-bearing assets decreased from 14bp to 4.53%, mainly due to the company's adjustment of retail loan structure, pressure on high-yield and high-risk retail loans such as new loans, credit cards, auto finance and other high-yield and high-risk retail loans (new loan / credit card / auto financing balance decreased by 14.2%, 2.2%, 2.8%), and increased low-risk mortgage and licensed mortgage loans, resulting in retail loan yields down from 37bp to 6.39%. 2) on the debt side: the cost rate of interest-bearing liabilities increased by 2bp to 2.28% month-on-month, mainly because the deposit cost rate increased by 1bp to 2.2% and the proportion of deposits increased by 1.2pct, of which the cost rate of public deposits slightly increased to 2.13%; the fixed-term trend of individual deposits was obvious, and the cost rate increased by 3bp to 2.36%.

The wealth management business is beautiful, and the agency insurance income remains high. 1) the revenue in the first three quarters increased by 2.5% compared with the same period last year, of which the wealth management service fee continued a good growth trend, mainly due to the high growth of agency insurance income, up 98.3% over the same period last year. 2) the basic market of customers maintained steady growth, the number of wealth / private customers increased by 11.0%, 14.3% respectively, and retail / private AUM increased by 13.2% and 20.6% respectively compared with the same period last year. The company continues to deepen the operation of existing customers and make full use of the group's resources to expand high net worth customers. In the first three quarters, the proportion of wealth / private customers transformed from the comprehensive extension channel was 54.9% and 63.6% respectively, an increase in 8.6/9.7pct compared with the beginning of the year.

The defect rate remained stable and the quality of retail assets improved. The 3Q23 defective rate / attention rate / overdue rate increased to 1.04% / 1.77% / 1.43% respectively from the previous month, mainly due to an increase in the rate of public malpractice and an improvement in the quality of retail assets. The net bad generation rate in the first three quarters decreased by 41bp to 1.82% compared with the first half of the year. 1) the bad rate of corporate loans rose 7bp to 0.61% month-on-month, mainly because some real estate companies took the initiative to confirm their asset quality and pressure drop exposure in related areas under the expectation of risk exposure, and the bad rate of public real estate rose 46bp to 1.47% month-on-month. At the end of September, the credit risk business balance related to real estate decreased by 26.8 billion yuan compared with the end of last year, and the risk is still relatively controllable. 2) the bad rate of retail loans decreased by 2bp to 1.33% month-on-month, continuing the improvement trend in the last quarter, mainly because the company took the initiative to reduce the investment of high-risk retail loans, the bad rate of credit card / car loans decreased by 24bp/10bp to 2.64% and 1.28% respectively, while the bad rate of new loans increased by 36bp to 1.81%. As the company increases the investment of low-risk business, the asset quality foundation will be consolidated.

Investment suggestion: the company adjusts the layout of retail assets, reduces the risk preference, and the revenue is under pressure in stages, but the risk base is tamped, which leads to the continuous improvement of asset quality. As the steady growth policy continues to strengthen and the real economy gradually picks up, corporate fundamentals are expected to improve. Considering that there is still downward pressure on interest spreads and the reduction of bancassurance fees will weaken the income of the agency insurance business, we have adjusted our profit growth forecast for the next three years. We expect the company's net profit growth rate to be 8.8%, 7.3% and 10.4%, respectively, from 2023 to 2025. At present, the stock price corresponds to 0.49x23PB and maintains a "buy" rating.

Risk hints: the economy is declining more than expected, bad exposure is substantial, the quality of real estate assets is deteriorating, and the decline in interest rate spreads is widening.