Ping An Bank released its report for the first quarter of 2024. Our comments are as follows: 24Q1 revenue, PPOP, and net profit to mother increased by -14.0%, -15.0%, and 2.3%, respectively. The growth rates changed by -5.58pct, -5.77pct, and +0.20pct, respectively, from '23. In terms of performance drivers, growth in scale, provision, other income and expenditure, and reduction in effective tax rates have contributed positively, with narrowing net interest spreads being the main drag.
Highlights: (1) Stable asset quality. The non-performing loan ratio at the end of 24Q1 was 1.07%, up 1 bps from the end of 23. The non-performing ratio for public loans was stable. The retail non-performing loan ratio rebounded 4 bps from '23, mainly the consumer loan non-performing rate increased by 16 bps. The attention rate at the end of 24Q1 was 1.77%, up 2 bps from the end of 23, and the overdue rate was 1.42%, the same as in 23. The estimated 24Q1 bad generation rate was 2.2%, an increase of 17 bps over the previous year. The provision coverage rate at the end of 24Q1 was 261.66%, continuing to drop 16 pcts from '23.
Asset quality indicators are generally stable, and provision coverage is declining, providing support for positive profit growth. (2) High growth in other non-interest income. The company's other non-interest income increased 56.7% year-on-year in 24Q1. The main contributions came from debt investment income and profit and loss from changes in the fair value of transactional financial assets.
Concern: (1) The expansion of deposit and loan scale is slowing down, and risk appetite continues to be reduced. 24Q1 loans increased 1.2% year on year. Structurally, retail loans grew negatively. They continued to weigh down high-risk assets, expand the medium- and low-risk customer base, build a strong basic market for the healthy development of medium- and long-term businesses, increased support for manufacturing, green finance, and high-tech industries, contributing to major loan increases. The size of deposits increased by -0.1% year over year, mainly due to a reduction in public deposits. (2) Interest spreads continue to narrow, the asset side is being dragged down a lot, and debt costs are rigid. The company's 24Q1 net interest spread was 2.01%, 37 bps narrower than in '23. The main pressure was on the asset side. The yield on 24Q1 interest-bearing assets was 33 bps narrower than in '23. Among them, loan yields narrowed by 49 bps, mainly affected by factors such as heavy pricing, pressure on high-risk assets, and declining interest rates on new loans under concessionary entity policies. The yield on 24Q1 retail loans and public loans declined by 10 bps and 6 bps from 23Q4, respectively; on the debt side, the 24Q1 deposit cost ratio was 2.22%, up 2 bps from 23, and the cost on the debt side was still rigid. (3) Negative increase in net revenue from handling fees. The 24Q1 net revenue from fees and commissions increased by -19% year-on-year, and is expected to be affected by reduced banking insurance channel fees, declining equity fund sales, and declining bank card fees driven by a reduction in credit card size.
Profit forecasting and investment advice: The company's expansion is slowing down and gradually shifting from the original high-risk and high-return model. Profits are expected to be pressured in stages, but asset quality is still stable, endogenous capital replenishment is guaranteed, and wait before starting. The company's net profit growth rate for 24/25 is 0.5%/1.3%, EPS is 2.26/2.29 yuan/share, respectively. The current stock price is 4.73X/4.67X for 24/25 PE, respectively, and 0.48X/0.44X for 24/25 PB, respectively. Taking into account the company's historical PB (LF) valuation center and fundamentals, the company was given a reasonable PB valuation of 0.8X for 24 years, maintaining a purchase rating for a reasonable value of 17.91 yuan per share.
Risk warning: (1) the quality of retail assets deteriorated due to a decline in economic growth exceeding expectations; (2) rising deposit costs exceeding expectations; (3) management stability issues; (4) policy regulation exceeding expectations.