Incident: On March 28, the Postbank announced its 2023 annual report, which achieved revenue, profit before provision, and net profit of 3425.1, 117.9, and 86.27 billion dollars for the whole year, compared with 2.3%, -7.0%, and 1.2%, respectively. The annualized weighted average ROE was 10.85%, a year-on-year decrease of 1.04pct. The reviews are as follows:
The revenue growth rate increased month-on-month, and provisions fed back positive profit growth.
Revenue side: Net interest income achieved positive growth, and revenue from wealth management grew rapidly. In 2023, the Postbank achieved revenue of 342.51 billion, an increase of 2.3% year over year. The growth rate was 1 pct higher than in the previous three quarters. Let's take a closer look:
① As the scale continues to increase and interest spreads narrow, “quantitative compensation” has achieved positive growth in net interest income.
Net interest income of 281.8 billion yuan was achieved in 2023, up 3% year-on-year, and the growth rate decreased slightly by 0.1 pct from the previous three quarters.
② Revenue from wealth management bucked the trend, and other non-interest income performed brilliantly. In 2023, the Postbank's net non-interest revenue was 60.7 billion yuan, down 1.1% year on year. The decline was 5.2 pcts narrower than in the previous three quarters. Among them, net revenue from handling fees and commissions was $28.25 billion (accounting for 8.3% of revenue), a year-on-year decrease of 0.6%. After excluding one-off factors in the transformation of net worth wealth management products in the previous year, revenue increased 12.1% year over year. Among them, against the backdrop of last year's capital market turmoil and the decline in revenue in the wealth management industry, the company's wealth management business revenue bucked the trend; agency business fee revenue was 20.86 billion yuan, an increase of 24.16% over the previous year. AUM for individual customers reached $15.23 trillion, up 9.68% year over year. Other non-interest income was $32.45 billion (9.5% of revenue), a year-on-year decrease of 1.4%. Mainly due to exchange rate fluctuations, exchange earnings decreased year on year; investment income and fair value change income totaled 31.44 billion yuan, up 20.2% year on year, and financial market business performance was outstanding.
Cost side: The increase in savings agency fees dragged down the cost-revenue ratio, and provisions fed back positive net profit growth. In 2023, Postbank management expenses increased 7.9% year on year, cost to revenue ratio of 64.8%, up 3.4 pct year on year, mainly due to the rapid increase in deposit absorption and savings agency fees by agency outlets. Profit before dragging down provision fell 7% year over year. Credit impairment losses were -26% year-on-year, and the year-end provision coverage rate was 347.6%, a year-on-year decrease of 38 pcts. Backed by provisions, net profit increased 1.2% year on year, and the growth rate decreased 1.2 pct from the previous three quarters.
Credit has maintained a relatively rapid growth rate, and investment in infrastructure and operating loans has increased.
At the end of 2023, Postbank's loan balance was +13% year-on-year, up 0.9 pct from the end of September. An increase of 938.46 billion yuan was added for the whole year, an increase of 182.13 billion over the same period last year. Judging from the new loan situation, public and retail loans accounted for 58.1% and 45.2% respectively, up 3.2 and 6.9pct from the previous year; at the end of '23, the share of public and retail loans was 39.4% and 54.9%, respectively, +2.4 and -1.2pct compared to the previous year. Among them, public loans were mainly invested in infrastructure and manufacturing related industries, accounting for 23.1% and 10.7% respectively. Retail loans were mainly invested in operating loans and housing mortgage loans, accounting for 27.4% and 8.1% respectively.
The narrowing of net interest spreads is in line with expectations, and the decline is expected to narrow in 24.
The 2023 Postbank net interest spread was 2.01%, down 4BP from the previous three quarters, down 19BP year on year. The decline was less than the industry average (commercial bank's 2023 net interest spread fell 22BP to 1.69% year on year). ① Asset side: The yield on interest-bearing assets decreased by 25 BP year-on-year. Among them, the yield on loans, personal loans, and public loans declined by 35BP, 45BP, and 22BP, respectively. ② Debt side: The interest rate on interest-bearing debt decreased by 6BP year-on-year. Among them, the deposit interest rate dropped by 6BP, the time deposit interest rate dropped by a relatively large amount, and the deposit cost control effect was evident. Looking ahead, asset-side returns are still under downward pressure in 2024, but considering that debt-side deposit cost reduction dividends will be further released, the narrowing of interest spreads is expected to decrease.
Asset quality is generally stable, with fluctuations in some segments
Asset quality book indicators remained good. By the end of 2023, the company's non-performing loan ratio was 0.83%, down 1BP year on year; the share of concerned loans was 0.68%, up 12 BP year on year. Looking at the dynamics, the non-performing loan generation rate in 2023 was 0.85%, the same as the previous year.
Judging from the quality of segmented loan assets: ① The quality of public assets is generally stable, and the non-performing rate in the real estate industry has increased. At the end of 2023, the non-performing loan ratio was 0.55%, a year-on-year decrease of 2BP. Among them, the non-performing balance of public real estate increased by 3.132 billion yuan year on year, and the non-performing rate increased by 1 pct to 2.45% year on year. ② The quality of personal loan assets is generally stable, and the generation of bad credit cards is high. At the end of 2023, the personal loan non-performing ratio was 1.12%, down 1BP year over year. Among them, the non-performing rates for consumer loans and credit card loans were 1.81% and 1.71% respectively, both down year on year; the non-performing ratio of operating loans was 1.73%, up slightly by 3BP year on year. From the perspective of bad generation, the credit card defect generation rate is high (3.54%).
Investment advice: Retail banks have distinctive characteristics and accelerate the construction of five differentiated growth poles. Relying on the “self-operated+agent” operation model, the Postbank has laid out nearly 40,000 business outlets, leading in number and deep decline, establishing its solid customer base and debt advantage. At the same time, the company adheres to the strategic positioning of retail banks, deeply cultivates the “three rural areas”, small and micro, and inclusiveness, and accelerates the construction of five differentiated growth poles. In 2023, in the context of insufficient demand for effective credit, rapid credit investment was achieved; net interest spreads remained at a superior level in the industry; income bucked the trend due to the upgrade of the wealth management system and in-depth customer exploration. Looking ahead, in 2024, the scale of corporate credit is expected to maintain a relatively rapid growth rate, the narrowing of interest spreads will decline year on year, revenue will maintain steady growth, asset quality will remain steady, and profits are expected to be released smoothly under the demand for sustainable support to the real economy.
Net profit growth rates for 2024-2026 are expected to be 2.2%, 2.5%, and 4.4%, respectively, with corresponding BVPS of 8.54, 9.17, and 9.84 yuan/share, respectively. The closing price on March 29, 2024 was 4.75 yuan/share, corresponding to the 2024 net market ratio of 0.56 times. I am optimistic about the high growth attributes of the Postbank among state-owned banks, and maintain a “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.