The value of retail endowments continues to be realized. The Postbank has a total of about 40,000 self-operated+agent outlets, laying a deep retail customer base for the Postbank. At the end of 23H1, the number of retail customers reached 656 million, and the retail AUM reached 14.5 trillion yuan. In the context of wealth management transformation and upgrading, the potential of the retail customer base is expected to be further unleashed. Wealth management has developed a good customer base, and there is still plenty of room for structural strength. First, the average AUM of outlets is only 370 million yuan/branch. Second, the current retail AUM structure is still mainly based on deposits, and there is room for improvement in both areas compared to peers. Meanwhile, the company's current management has deep experience in retail business. In 2023, the company will also deepen the transformation of wealth management by reorganizing the retail customer hierarchy system and building private offline service stations, etc., which is expected to support the continuous increase in revenue contributions in the future.
Supported by agricultural loans, the ability to expand the balance sheet is outstanding. In the field of agricultural loans, one is that there is policy support. The “three rural” work has long been the subject of the Central Committee Document No. 1. In the context of rural revitalization, the agricultural loan market has broad demand space; second, the Postbank has extensive outlets and sinks into the county. At the same time, under the leadership of the Sannong Finance Division, credit system construction and digital transformation have fundamentally improved the Postbank's “Three Rural” financial service capabilities. Currently, agricultural loans have become an important growth pole for Postbank credit. In the first half of 2023, agricultural loans contributed 37.6% to the total increase in Postbank loans; in the increase in retail loans, personal microfinance contributed 71%.
The comparative advantage of net interest spreads is expected to continue. Compared with its peers, the Postbank's net interest spread performance was stronger, and both sides of the subsequent capital burden were still favorable factors. 1) Asset side: First, the share of loans in interest-bearing assets continues to increase, structurally optimizing asset-side returns; second, personal microfinance, which is an important source of incremental loan growth, also has a relative pricing advantage. 2) Debt side: The Postbank began to reduce the share of high-term deposits earlier, causing its debt-side cost ratio to gradually decline; and the reduction in interest rate listing for deposits four times in 2022 to 2023 also brought some benefits to reducing debt costs.
The quality of assets is excellent, and there is plenty of room for performance release. On the one hand, the current bad rate and credit cost ratio of the Postbank are both low, that is, the comprehensive return on loans after considering credit costs is not bad. On the other hand, the current bad generation rate of the Postbank is also low, and there is not much pressure on subsequent credit costs, so there is plenty of room for profit release, thus improving the ability to replenish endogenous capital.
Investment advice: Major retail businesses with excellent asset quality
As a major state-owned bank with distinctive retail characteristics, Postbank has adhered to the retail banking strategy for many years, and has achieved remarkable results in wealth management upgrades in recent years, and has sufficient potential for income growth; currently, taking advantage of rural revitalization, agricultural loans drive credit expansion, and the loan-to-deposit ratio is expected to further improve; it also has strong risk control capabilities, and excellent asset quality and value creation ability. The Postbank's EPS for 23-25 is expected to be 0.89 yuan, 0.96 yuan, and 1.05 yuan respectively. The closing price on February 1, 2024 corresponds to 0.6 times 24-year PB, maintaining the “recommended” rating.
Risk warning: macroeconomic fluctuations exceeded expectations; transformation progress fell short of expectations; improvements in the real estate industry fell short of expectations.