Incident: On March 28, the Postbank released its 2023 Annual Report. Over 23 years, it achieved cumulative revenue of 342.5 billion yuan, YoY +2.3%; net profit to mother of 86.3 billion yuan, YoY +1.2%; non-performing rate of 0.83%, provision coverage rate of 348%.
Performance grew steadily, and net interest income remained resilient. Postbank's revenue growth rate in '23 was +1.0pct compared to the previous three quarters. Among them, strong interest spreads and strong credit growth led to +3.0% year-on-year net interest income in '23, laying a solid foundation for positive revenue growth. Under the construction of wealth management, revenue performance is still excellent. After excluding one-time income from the net worth transformation of financial management in '22, revenue was +12% compared to the same period last year. In addition, other non-interest income in the 23Q4 single quarter was +55.4% year-on-year, which also supported the positive year-on-year increase in revenue.
The asset structure is optimized, and deposit costs are expected to continue to decline. The Postbank's net interest spread at the end of 23 was 2.01%, down 4BP from the end of 23Q3. Although factors such as declining LPR also put some pressure on interest spreads, both sides of the Postbank's assets and liabilities had good support, and the decline in interest spreads was small. On the asset side, 1) The asset structure continued to be optimized. Total loans in '23 were +13.0% year-on-year, the growth rate was 0.9 pct higher than 23Q3, and the ratio of loans/total assets at the end of '23 was 51.8%, up 0.6 pct from the end of '22. 2) The good growth in retail loans contributed to interest spreads. In particular, the balance of personal microfinance loans at the end of '23 was +22.6% compared to the same period last year.
On the debt side, deposit cost rates in '23 showed a downward trend, with deposit cost ratios of 1.61%, 1.54%, and 1.53% at the end of 23H1/23 respectively; and in the Postbank deposit structure at the end of '23, retail loans accounted for nearly 90%, which may benefit more from the reduction in deposit listing interest rates, and deposit costs are expected to continue to decline in 24 years.
At the same time, the savings agency comprehensive rate for payments to agency outlets also gradually declined. At the end of '23, it was 1.24%, down 3BP from the end of '22.
Wealth management construction is progressing in depth. At the end of '23, the number of retail customers served by Postbank reached 660 million, and the retail AUM reached 15.23 trillion yuan, +9.7% year over year; the number of Fujia and above customers was 4.96 million, +16.8% year over year. The refined management of the retail customer base is expected to support the continued excellent performance of the Postbank's revenue.
The defect rate remains the lowest in the industry. The Postbank's non-performing rate at the end of 23 was 0.83%, up 2BP from the end of 23Q3, but it was still the lowest among major state-owned banks. Among them, consumer loan and credit card non-performing rates improved. At the end of 23, they were 1.81% and 1.71%, respectively, compared to 23H1; personal microfinance loans at the end of 23 were 1.73%, up 11BP from 23H1, but over a longer period of time, the non-performing rate of microfinance loans has been at a low level in history since the end of '21.
Investment advice: Interest spreads are relatively strong, asset quality is excellent
The Postbank's performance has been growing steadily in 23 years. With relatively strong interest spreads and the support of the continuously advanced wealth management business, revenue continues to have sufficient upward momentum; moreover, asset quality is steady, and the non-performing rate remains low, so profits are expected to continue to be released. EPS is expected to be 0.88, 0.89, and 0.91 yuan respectively in 24-26, and the closing price on March 29, 2024 corresponds to 0.6 times 24-year PB, maintaining the “recommended” rating.
Risk warning: Macroeconomic growth is declining; asset quality is deteriorating; the decline in net interest spreads in the industry exceeds expectations.