Key points of investment
Ping An Bank's business adjustments continue to advance, putting pressure on revenue, so keep an eye on subsequent developments.
Overview of the data
Ping An Bank's net profit for 24Q1 increased 2.3% year on year, slightly up 0.2 pc from 23A; revenue fell 14.0% year over year, and the decline was 5.6 pc higher than 23A. Ping An Bank's non-performing rate at the end of 24Q1 rose slightly by 1bp to 1.07% from the end of 23A, and the provision coverage rate dropped 16pc to 262% compared to the end of 23A.
Profits have remained stable
Ping An Bank's net profit for 24Q1 increased 2.3% year on year, slightly up 0.2 pc from 23A; revenue fell 14.0% year over year, and the decline was 5.6 pc higher than 23A, and the overall performance was in line with market expectations. Behind the pressure on revenue in the first quarter, due to continued pain due to business adjustments, the main sources of pressure were the decline in scale growth, interest spreads, and the pressure on middle income. (1) In terms of scale, the average daily interest rate of 2024Q1 increased by only 2.0% year on year, and the growth rate was further down 1.2pc from 2023Q4; (2) in terms of interest spreads, 24Q1 interest spreads (single quarter, daily average) fell 11 bps month-on-month, dragging down profits; (3) in terms of income, due to insurance rate adjustments, intermediate income was negative 19% year on year, with consignment insurance income negative increasing 81% year over year. Looking ahead, it is expected that Ping An Bank is still in the business adjustment stage in 2024, and revenue pressure will still be strong; however, provisions are still strong, and it is expected to achieve positive profit growth.
Interest spreads continue to bottom
The 24Q1 single-quarter interest spread (daily average, same below) fell 11 bps to 2.01% month-on-month. Behind the decline in interest spreads, there was pressure on both sides. (1) The asset-side yield fell 8 bps to 4.25% month-on-month, mainly due to the progress of business adjustments and the decline in the share of high-yield retail assets, compounded by the downward impact of loan interest rates on the industry. Interest rates on retail and public loans fell 6 bps and 8 bps, respectively, in 24Q1. At the end of 24Q1, interest rates on public loans increased 12.2% month-on-month, while retail consumer loans and credit cards fell 6.3% and 6.1%, respectively. (2) The debt-side cost ratio rebounded 2 bps to 2.30% month-on-month, mainly due to upward pressure on the industry to collect savings, and the share of deposits declined. Average daily deposits fell 1.9% month-on-month in 24Q1, and the growth rate was 3pc lower than interest-paying debt. Meanwhile, 24Q1 deposit interest rates rebounded 2 bps to 2.22% month-on-month, mainly due to continued pressure on foreign currency deposit costs.
Looking ahead, it is expected that Ping An Bank interest spreads will continue to bottom out in 2024, and we will keep a close eye on the progress of the transformation.
High level of failure generation
Looking at dynamic indicators, the 24Q1 real bad TTM generation rate was 2.49%, up slightly by 4 bps from month to month. The judgment was that it was risk exposure caused by business adjustments, compounding the upward impact of industrial retail risk. According to static indicators, the non-performing rate increased slightly by 1 bp to 1.07% month-on-month. Among them, the retail loan non-performing rate increased by 4 bps to 1.41%, and the non-performing ratio to public sector rebounded by 3 bps to 0.66% month-on-month. The increase in bad performance in the public sector was mainly related to poor real estate fluctuations. At the end of 2024Q1, the defect rate for public real estate increased 32 bps month-on-month to 1.18%. Looking ahead, Ping An Bank's bad generation is expected to remain high in the future. It is expected to improve in the second half of 2024, so we need to keep watching.
Profit forecasting and valuation
Ping An Bank's 24Q1 business adjustments continued to advance. Pain led to a decline in revenue, and attention was paid to subsequent developments. Ping An Bank's net profit is expected to increase 1.09%/1.91%/7.89% year-on-year in 2024-2026, corresponding to BPS 22.31/23.90/25.67 yuan. The current price corresponds to 0.48/0.45/0.42 times PB. Maintain the target price of 13.88 yuan/share, corresponding to 0.62x PB in 2024, 30% of the current price space, and maintain the “buy” rating.
Risk warning: The macroeconomic economy has stalled, and the bad situation has been greatly exposed.