Incident: On March 14, Ping An Bank announced its 2023 annual report. It achieved revenue, pre-provision profit, and net profit of 164.7 billion, 117.02 billion, and 46.46 billion yuan for the whole year, which were -8.4%, -9.1%, and +2.1%, respectively.
The annualized weighted average ROE was 11.38%, a year-on-year decrease of 0.98 pct. The reviews are as follows:
Annual Report Highlights
(1) The 30% dividend ratio exceeded expectations, and the current dividend rate has reached 6.8%.
In 2023, the company plans to pay a cash dividend of 7.19 yuan for every 10 shares, with a dividend ratio of 30%; higher than the company's average dividend ratio over the past ten years (average 15% in 2013-2022). We believe that the company's core tier 1 capital adequacy ratio has increased, capital pressure has been reduced, and favorable conditions have been created for increasing dividends. As of the close of trading on March 15, the company's dividend rate was as high as 6.8%, and the allocation value was outstanding.
(2) Organizational structure reform is implemented, and the efficiency of institutional operation is expected to improve. In 2023, the company completed organizational reforms. The head office structure was streamlined and business divisions were abolished, with the aim of improving efficiency and enhancing service capabilities.
Branches strengthen functions and deepen integrated management. We believe that in the current context of insufficient demand for effective credit, significant differentiation in economic and credit needs in various domestic regions, and increasingly fierce bank competition, strengthening branch functions, simplification and decentralization will help improve efficiency and capabilities, and achieve the efficient implementation of the company's various strategies.
(3) The wealth management business is developing steadily, and the number of private clients and AUM is growing rapidly. ① Customer side:
Wealth and private clients have maintained rapid growth. The number of retail customers at the end of the year exceeded 125 million, up 1.9% from the beginning of the year.
The number of wealth and private customers was 1.377,500 and 90,200 respectively, up 8.9% and 12% from the beginning of the year, and the growth rate was higher than that of basic retail customers. ② AUM side: At the end of the year, retail AUM exceeded 4 trillion yuan, up 12.4% from the beginning of the year, and private AUM exceeded 1.9 trillion, up 18.2% from the beginning of the year. Private AUM grew significantly, contributing 66% to retail AUM growth, and private AUM accounted for 48% of retail AUM.
Revenue expectations are under pressure, and provisions are boosting profits.
Revenue side: Continued pressure trend, in line with expectations. Ping An Bank's revenue in 2023 was -8.4% year-on-year, and the growth rate declined 0.8 pct from the previous three quarters. Specifically: ① Net interest income was -9.3% year-on-year, and the decline further expanded month-on-month; Q4 net interest income was -18.7% year-on-year (down 5 pcts from Q3). Mainly due to the slowdown in the growth rate of credit scale and the continuous narrowing of net interest spreads from month to month. ② Overall, non-interest income is still under pressure. Net revenue from handling fees and commissions for the year was -2.6% year-on-year, with a year-on-month decline of 5 pct; the main drag was bank card fee revenue (-13.1% YoY), mainly due to the active contraction of the credit card business and the decline in market sentiment; under the rapid growth of the agency insurance business, agency commission fees were +5.5% YoY. Other non-interest net income was -11.7%. Among them, fair value change gains and exchange gains and losses declined significantly due to capital market and exchange rate fluctuations; bond investments achieved good returns.
Cost side: Continue to control expenses, reduce credit costs, and maintain positive net profit growth. The company continues to strengthen the refined management of expenses, reduce costs and increase efficiency. Annual management expenses were -6.9% year-on-year, and the cost-revenue ratio remained low. Credit impairment losses were -17.1% year-on-year, and the year-end provision coverage rate was 277.6%, down 5 pct from month to month. Risk offsetting capacity was generally stable. Backed by provisions, net profit increased 2.1% year on year, and the growth rate fell 6.1 pct from the previous three quarters, which is basically in line with expectations. The profit performance was better than the stock bank average (according to regulatory industry data, the net profit of stock banks in 2023 was -3.67% year-on-year).
The growth rate of scale continues to slow, and risk appetite is being actively adjusted.
At the end of 2023, Ping An Bank's loan balance was +2.4% year-on-year, and the growth rate was 1.4 pct slower than at the end of September. Q4 The loan balance in a single quarter decreased by 18.6 billion yuan, a year-on-year decrease of 46.4 billion; of these, public loans increased by 40.7 billion yuan and retail loans decreased by 70.5 billion yuan, continuing the contraction trend. Judging from the annual performance of the retail business, the total amount of individual loans at the end of the year was -3.4%. Among them, credit cards and consumer loans were -11.2% and -9.5% year-on-year respectively, while mortgage loans and operating loans (including licensed collateral) were +6.7% and +5.6% year-on-year respectively. It shows that in the current context of economic pressure, the company has actively adjusted risk appetite, continued to push forward individual loan restructuring, and strengthened low-risk investments such as mortgages.
Interest spreads have narrowed in line with expectations and are expected to remain under pressure in '24.
Net interest spread for 2023 was 2.38%, down 9BP from the previous three quarters; Q4 net interest spread for the single quarter was 2.11%, down 19BP from Q3, in line with expectations. ① Asset side: Under the adjustment of interest rates on stock mortgages, the yield on interest-bearing assets dropped significantly. Q4 Return on interest-bearing assets month-on-month - 19BP. Among them, the yield on loans, personal loans, and corporate loans was -25BP, -29BP, and -14BP, respectively. ② Debt side: Costs are rigid, and the decline in deposit costs is lagging behind. The interest rate on Q4 interest-bearing debt remained flat month-on-month, with deposit interest rates of -1BP month-on-month.
We judge that asset-side returns may continue to decline in 2024, debt-side deposit cost reduction dividends will gradually be released, and interest spreads will continue to be under pressure, but returns are expected to remain stable after risk adjustment.
Asset quality is generally stable, with fluctuations on the retail side
Asset quality book indicators have remained good. By the end of 2023, the company's non-performing loan ratio was 1.06%, with a slight increase of 2BP and 1BP month-on-month, respectively; the proportion of concerned loans was 1.75%, down 2BP and 7BP month-on-month, respectively. The criteria for determining non-compliance have become stricter, and the balance overdue for 90 days or more has been reduced to 59.2%. The non-performing loan generation rate was 1.89%, up 17BP year over year.
Judging from the quality of segmented loan assets: ① Relatively stable to the public sector: At the end of 2023, the non-performing ratio of general corporate loans was 0.74%, a slight increase of 2BP over the previous year. In key areas, the non-performing ratio of loans to public real estate decreased by 57BP to 0.86% year on year; local government financing platforms (including loans restructured to general corporate loans and loans still managed according to the platform) had a loan balance of 78.993 billion yuan, with no non-performing loans. ② Retail sales fluctuated: At the end of 2023, the non-performing rate of personal loans was 1.37%, up 5BP from the previous year. Among them, credit cards had the highest non-performing rate (2.77%, up 9BP year on year), followed by consumer loan non-performing rate (1.23%, up 15 BP year on year). The non-performing ratio of operating loans and housing mortgage loans was relatively low, at 0.83% and 0.3%, respectively, up 9BP and 2BP from the previous year. We judge that under current economic pressure, there is still negative pressure on credit and high-yield loans on the retail side, but with the company actively adjusting risk appetite and optimizing the structure, it is expected to be generally manageable.
Investment advice: We expect Ping An Bank loans to maintain small single-digit growth in 2024. Interest spreads are still under pressure, but the decline is narrowing; non-interest income has recovered steadily, and revenue is expected to remain under pressure. However, considering the overall stability of asset quality and sufficient provisions, net profit is expected to be released smoothly under the demand for sustainable support to the real economy. Net profit is expected to increase by 2%, 4.2%, and 5.2% year-on-year in 2024-2026, corresponding to BVPS of 23.18, 25.73, and 28.42 yuan/share, respectively. The closing price on March 15, 2024 was 10.6 yuan/share, corresponding to a net market ratio of 0.46 times, maintaining the “Highly Recommended” rating.
Risk warning: Economic recovery and physical demand have fallen short of expectations, and the speed of statement expansion, net interest spread levels, and asset quality have been impacted.