Incidents:
On March 28, the Postbank released its 2023 annual report. During the reporting period, it achieved operating income of 342.5 billion yuan, YoY +2.3%, net profit to mother of 86.3 billion yuan, and YoY +1.2%. Weighted average return on net assets 10.85%, YoY -1.04pct.
Comment:
The revenue growth rate increased by 1.1 pct from quarter to quarter, and the revenue contribution of retail business rose to 72.9%. In 2023, the Postbank's revenue, net profit before provision, and net profit to mother grew by 2.3%, -7.1%, and 1.2%, respectively. Revenue and net profit before provision increased 1.1 and 1.7 pcts, respectively, compared to 1-3Q. The profit growth rate decreased by 1.2 pct from 1-3Q, and both revenue and profit growth rates recorded positive increases throughout the year. In terms of the main composition of revenue, net interest income and non-interest income grew by 3% and -1.1%, respectively. The growth rates changed by -0.1 and 5.2 pct, respectively, from the previous three quarters. Dividing the year-on-year profit growth structure, scale expansion and provision were the main contributors, driving performance growth rates of 36.6 and 10.8 pct, respectively. Judging from marginal changes, scale expansion is contributing to a high increase, provision positive contributions have narrowed slightly, negative interest spreads have widened slightly, and non-interest liabilities have narrowed.
The expansion of the balance sheet has maintained a high intensity, and rural revitalization has promoted a high increase in credit investment in characteristic fields. By the end of 2023, the interest-bearing assets and loans of the Postbank increased by 11.7% and 13%, respectively, and changed by -1.3 and 0.9 pct respectively from the end of the 3Q; the share of loans in interest-bearing assets decreased slightly by 0.6 pct to 51.8% from the end of the 3Q, up 0.6 pct from the beginning of the year. The 4Q quarter added 43.6 billion dollars in interest-bearing assets. Among them, loans, financial investment, and interbank assets increased by 128.4 billion yuan, 11.4 billion yuan, and 290.9 billion yuan respectively, and loans increased by 69.8 billion yuan over the same period last year. In terms of the new loan structure, public loans, retail loans, and notes increased by 56.5 billion dollars, 67.1 billion dollars, and 4.8 billion dollars respectively in a single quarter. Of these, retail loans increased by 52.3%, an increase of 38.8 billion yuan over the previous year. By the end of 2023, the year-on-year growth rates of public and retail loans were 20.4% and 10.5%, respectively, with changes of -1.4 and 0.9 pct respectively from the end of the 3rd quarter.
Looking at the annual loan investment trend, the Postbank added 9385 billion new loans in 2023, an increase of 182.1 billion over the previous year. The focus was on investing in public and retail credit, increasing pressure reduction on low-interest assets such as notes, and optimizing the credit structure. Specifically: 1) Public loans increased by 545.1 billion yuan, an increase of nearly 130 billion dollars over the previous year. The company continued to increase investment in key areas such as advanced manufacturing, strategic emerging industries, specialization, inclusiveness, and green, while accelerating the construction of a differentiated growth pole for small and micro finance; 2) Retail credit increased by 424.1 billion yuan, an increase of 134.2 billion dollars over the previous year, of which personal microfinance (+257 billion, accounting for 60.6%), housing mortgages (+76.2 billion, accounting for 18%), personal consumption loans (+539 billion, accounting for 12.7%), personal consumption loans (+539 billion, accounting for 12.7%) microfinance The increase accounts for more than 60%, making it the main contributor. The Postbank continues to increase credit investment in key areas of rural revitalization to create a differentiated competitive advantage in the rural market. The growth rate of microfinance loans recorded 20% + for 4 consecutive years.
New 4Q deposits were mainly contributed by retail sales, and the size of core debt continued to grow steadily. By the end of 2023, the year-on-year growth rates of the Postbank's interest-bearing liabilities and deposits were 11.7% and 9.8%, respectively. The growth rate decreased by 1.9 and 0.3 pct, respectively, from the end of the 3rd quarter. The size of core debt maintained steady growth, and the share of deposits in interest-bearing liabilities increased by 0.8 pct to 95.1% compared to the end of the 3Q period. Among the new deposits in the 4Q, personal and public deposits were 460.1 billion and 3.9 billion respectively. Among them, personal deposits of one year or less achieved rapid growth. At the end of 2023, the share of retail deposits in total deposits increased by 0.8 pct to 42.9% compared to the end of 3Q. At the end of 2023, the share of time deposits in total deposits increased by 0.8 pct to 71.1% over the medium term, and the trend of fixed-term deposits continued in the second half of the year.
Interest spreads narrowed by 4 bps to 2.01% compared to the previous three quarters, and the narrowing pressure on NIM was mainly due to a decline in asset-side returns.
The Postbank's net interest spread in 2023 was 2.01%, 4 bps narrower than the previous three quarters and 19 bps narrower year over year. 1) On the asset side, the estimated yield on interest-bearing assets fell 4 bps from the previous three quarters, and the yield on loans in 2023 fell 11 bps to 4.13% from the medium term. Among them, the yield on public and retail loans fell by 3, 17 bps to 3.62% and 4.78% in the medium term, respectively. The decline in retail loans was more obvious, mainly dragged down by factors such as LPR reduction and stock mortgage repricing; 2) On the debt side, the estimated cost ratio of interest-bearing debt remained flat compared to the previous three quarters. The Postbank vigorously promoted the growth of value deposits through policy guidance such as performance evaluation and interest rate management. The deposit cost rate in 2023 was slightly reduced by 1 bps to 1.53% in the medium term, down 8 bps from the previous year. The deposit cost ratio is still expected to improve year-on-year in 2024, considering that the reduction in the listed interest rate for early deposit will be further effective in improving debt costs.
Non-interest income fell 1.1% year over year to 60.7 billion, and the decline in net other non-interest income narrowed significantly from month to month. In terms of the main composition of net non-interest income in 2023, 1) Net income from handling fees and commissions fell 0.6% year on year to 28.3 billion, mainly boosted by the agency business increase of 4.06 billion yuan (YoY +24.2%) year on year. Despite capital market turbulence and low risk appetite among residents, it still bucked the trend and achieved high growth. The main beneficiaries were company outlets spread all over the county, urban and rural areas, and differentiated wealth management growth poles. According to financial reports, net income from handling fees and commissions increased 12.1% year over year after excluding the one-off factors of net worth financial management product transformation in the same period last year; 2) Other net non-interest income fell 1.4% year on year, and the decline was 10.4 pcts narrower than in the previous three quarters. Fair value change income and investment income increased by 3.83 billion yuan and 1.45 billion yuan, respectively, mainly driven by factors such as an increase in dividend income from corporate fund investment, an increase in price spread income from bill transactions, and an increase in investment bonds and fund valuations.
The non-performing rate is low, and the overall quality of assets remains stable. At the end of 2023, Postbank's non-performing loan ratio was 0.83%, up 2 bps from the end of 3Q, and is still at a low level in the industry. Note that the loan ratio increased by 6 bps to 0.67% at the end of the 3rd quarter. Credit impairment for the whole year was 26.2 billion yuan, a year-on-year decrease of 26%. While asset quality remained stable, 4Q still maintained strong provision growth. The 4Q single quarter accrued credit impairment losses of 5.02 billion yuan, an increase of 1.14 billion yuan over the previous year. Credit impairment loss/average total assets in 2023 was 0.18%, a slight decrease of 1 bp from the previous three quarters. By the end of 2023, the postal reserve coverage rate was 347.6%, down 16.3pct from the end of the 3Q; the loan ratio was 2.88%, down 7 bps from the end of the 3Q, and the overall provision intensity was at a high level in the industry.
Capital replenishment is progressing in an orderly manner, and capital adequacy ratios at all levels are rising steadily. The Postbank RWA at the end of 2023 increased by 12.7% year on year, down 2.3 pct from the end of 3Q. The margin of capital consumption decreased and the issuance of superimposed capital instruments progressed in an orderly manner. At the end of 2023, the company's core Level 1/Level 1/capital adequacy ratios were 9.52%, 11.61%, and 14.23% respectively, up 7, 42, and 40 bps from the end of the 3Q period, respectively. The new capital regulations were implemented in 2024, and the Postbank's subsequent capital measurement may transition to using the Advanced Internal Assessment Act, thereby further improving the capital adequacy ratio.
Profit forecasting, valuation and ratings. The Postbank has high asset quality, stable deposit sources, large asset-side optimization space, and unique endowment advantages in the field of county finance. Relying on the unique model of “self-employed+agency”, it is focusing on building a differentiated growth pole. At the end of 2023, Postbank served 663 million individual customers, and retail AUM increased by 1.34 trillion to 15.23 trillion over the end of the previous year, an increase of 8.6%. The share of personal banking in 2023 in revenue increased by 2.8 pct to 72.9% compared to the previous year, and the label of major retail banks is more obvious. Combined with the 2023 annual report, and considering factors such as rolling repricing of loans, the 2024 interest spreads will be strongly squeezed. The company's 2024-25 EPS forecast was lowered to 0.89 (-11%) /0.93 (-14.1%) yuan, and the 2026 EPS forecast was added to 0.98 yuan. The current A share price corresponds to 0.56/0.52/0.48 times the PB valuation, respectively. Looking ahead, the gradual recovery of the macroeconomy and the restoration of residents' balance sheets will provide strong support for the development of the Postbank's retail credit investment and wealth management business. Meanwhile, in recent years, the dividend rate has remained stable at 30%. The dividend rate is 5.5% based on the closing price of March 28. It has a good dividend return and maintains the “buy” rating of A\ H shares.
Risk warning: If the domestic economic growth rate falls short of expectations, it may affect the strength and quality of corporate credit investment and the progress of retail transformation.