Incident: On April 1**** An Bank released its 24Q1 financial report. 24Q1 achieved revenue of 38.77 billion yuan, YoY -14.0%; net profit to mother of 14.93 billion yuan, YoY +2.3%; non-performing ratio of 1.07%, and provision coverage of 262%.
The narrowing of interest spreads and the pressure on the mid-term earnings are hampering revenue performance. In 24Q1, Ping An Bank's revenue was -14.0% year over year, up 5.6 pct from the end of 23; net profit to mother was +2.3% year over year, and the growth rate rebounded 0.2 pct from the end of '23.
Fewer provisions supported a slight increase in net profit growth rate due to net profit growth, and 24Q1 credit impairment losses were -35.0% year-on-year. In terms of revenue breakdown, 24Q1's other non-interest income was +56.7%, the main positive contribution to revenue; under the combined influence of declining interest spreads and a slowdown in total asset growth, 24Q1 net interest income was -21.7% YoY; revenue continued to be under pressure, and 24Q1 revenue was -19.1% YoY.
Structural adjustments have intensified, and the pace of credit expansion has slowed. The adjustment of the asset business structure will be reflected in a decline in credit growth in the short term. Ping An Bank's total loan volume at the end of 24Q1 was +1.2% year-on-year. The retail customer base is shifting to medium to low risk. Currently, demand for effective credit is still recovering, and there may be some pressure to increase credit investment. The personal loan balance at the end of 24Q1 was -8.7% compared to the same period last year. At the same time, adjustments in risk appetite will also affect loan pricing. Combined with the impact of repricing in the first quarter, the net interest spread at the end of 24Q1 was 2.01%, down 10BP from 23Q4. However, the current business restructuring is mainly reflected in changes in retail customer base preferences. Ping An Bank's retail strengthening strategy is unwavering, and risk appetite adjustments have also laid a good foundation for further economic recovery and a recovery in retail credit demand; moreover, it has been effective in refining public affairs. The balance of public loans was +16.1% year-on-year at the end of 24Q1.
Revenue is under pressure in wealth management. The wealth management business base has been expanding steadily. Private AUM reached 1.9 trillion yuan at the end of 24Q1, +7.8% year-on-year, and the growth rate is lower than previous performance. Wealth management fee revenue of 1.07 billion yuan was achieved in 24Q1, of which agency insurance revenue was -81% year-on-year due to adjustments in banking insurance channel rates. It is expected that within 24 years, under pressure from banking insurance channel fee cuts, etc., wealth management revenue will continue to be under pressure.
The non-performing rate has increased marginally, and the ability to offset risks is relatively abundant. The defect rate and concern rate at the end of 24Q1 were 1.07% and 1.77%, compared with +1BP and +2BP at the end of 23, respectively. Among them, the retail loan non-performing rate was 1.41%, +4BP at the end of 23. The main fluctuation was due to consumer loans and operating loans. On the one hand, there was increased exposure in the process of disposing of stock risks, and on the other hand, a decline in credit balances. The declining denominator also partially increased the bad rate reading. In the real estate sector, the non-performing rate for public real estate at the end of 24Q1 was 1.18%, up 32BP from the end of 23. The provision coverage rate at the end of 24Q1 was 262%, and the loan ratio was 2.79%, compared with -16pct and -15BP at the end of 23, respectively.
Investment advice: business strategy transformation, retail logic unchanged
Ping An Bank is currently stepping up its asset business restructuring efforts, and the retail credit customer base is shifting to medium to low risk. Although it will slow down scale expansion and narrow interest spreads in the short term, putting some pressure on revenue, the core logic of strengthening retail remains unchanged. Currently, risk appetite is adjusted in a forward-looking manner. From a medium- to long-term perspective, it is only possible to undertake the new growth cycle with a healthier business foundation. EPS is expected to be 2.45, 2.53, and 2.65 yuan respectively in 24-26, and the closing price on April 19, 2024 corresponds to 0.5 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.