Description of the event
The Postbank released its 2023 annual report. The annual revenue growth rate was 2.3% (1.2% in the first three quarters), net profit to mother grew by 1.2% (2.4% in the first three quarters), the year-end non-performing rate was 0.83%, and the provision coverage rate was 347.57%.
Incident comments
Revenue growth rebounded against the trend, and investment income was not driven by interest. The annual revenue growth rate was 2.3%, bucking the trend. Among them, net interest income fell 3.0% (3.1% growth rate in the first three quarters) and non-interest income fell 1.1% year on year (6.2% decline in the first three quarters). Among them, net income from handling fees fell 0.6%, and investment income + fairness increased 20% year on year, driving the month-on-month recovery in revenue. Net profit to mother increased by 1.2%, down from the three-quarter report. Mainly affected by the increase in agency fees, the cost-revenue ratio increased year-on-year.
Credit has continued to expand at a relatively rapid pace, and the incremental structure has improved. Loans increased 13.0% throughout the year. As a major state-owned bank, it continued to be actively invested in 2023. In terms of incremental structure, the annual share of new public and retail sales was 58% and 45%, respectively, and retail loan growth rebounded from 2022. Q4 loans increased 1.6% month-on-month, with a 1.8% increase in public and 1.5% in retail sales. Among the various retail products, personal microfinance loans grew by 22.6% throughout the year, making them the fastest growing category. In addition, mortgages, other consumer loans, credit cards, etc. all achieved positive growth throughout the year. Annual deposits increased by 9.8%, accounting for 28.9% at the end of the year, compared to -0.8 pct at the end of June.
Net interest spreads continued to decline, and deposit costs continued to improve. Net interest spread for the full year was 2.01%, down 4BP from the three-quarter report and 19BP year-on-year. The annual loan yield was 4.13%, down 11BP from 2023H1. Among them, retail yield fell 17BP, reflecting the impact of stock mortgage interest rate cuts. Considering Postbank's high share of mortgage loans (28.7% at the end of 2023), this year's Q1 was heavily affected by heavy pricing and LPR cuts, and the 2024 net interest spread is expected to remain under strong pressure. Continued improvement in deposit costs is the main highlight. The annual deposit cost rate was 1.53%, down 1BP from 2023H1, and down 8BP from the previous year. Among them, the public active period continued to rise compared to the interim report, reflecting the bargaining power of corporate customers; interest rates on individual customer fixed and current deposits all declined compared to the interim report, benefiting from the deposit interest rate reduction policy. It is expected that the trend of improving deposit costs will continue in 2024, and dividends from lower interest rates on early deposit listings will continue to be released, while the trend will ease marginal regularization to ease downward pressure on asset prices.
Asset quality indicators are generally excellent, and there have been fluctuations in the generation of poor retail sales. The year-end defect rate was 0.83%, +2BP month-on-month, and the annual bad generation rate was 0.85%, up 3 BP from the previous three quarters. The retail and commercial defect generation rates both increased compared to 2023H1.
Among retail loans, the non-performing rate of personal microfinance loans rose 10BP from the first half of the year. Currently, the foundation for economic recovery has yet to be consolidated. As a retail bank, the Postbank is a reasonable situation where retail asset quality fluctuations are reasonable. In the public sector, the non-performing ratio of real estate to public loans at the end of the year was 2.45%, up 144 BP from the end of June. However, the absolute level of non-performing ratio was still the lowest among major state-owned banks. At the same time, real estate accounted for a relatively low share of public loans, which had limited impact on overall asset quality. The year-end provision coverage rate was 347.57%, -16pct compared to the previous month. Currently, provisions are still abundant. Under pressure on revenue, provision is reduced to feed back profits.
Investment advice: The absolute level of asset quality is still excellent, and the long-term retail vision is clear. The operating situation was stable throughout 2023. Q4 revenue bucked the trend, and the overall asset quality index was excellent. It has nearly 40,000 outlets and 660 million individual customers. In the long run, it is still a large bank with a clear retail vision and strong resource endowments. The expected revenue growth rate in 2024 is -2.4%, and the net profit growth rate is 0.8%, corresponding to the A share valuation of 0.56x2024PB, and the 2023 dividend ratio is 32%, corresponding to the dividend rate of 5.5% for A shares. It is expected that the dividend ratio will remain stable in the future, the dividend ratio is attractive, and the “buy” rating will be maintained.
Risk warning
1. The downward pressure on the economy is increasing, and the net interest spread continues to narrow;
2. Asset quality fluctuates, and the non-performing rate has increased markedly.