Excellent return on investment and declining credit costs
Ping An Bank's net profit, operating income, and PPOP for January-March were +2.3%, -14.0%, and -14.9%, respectively. The growth rate was +0.2pct, -5.6pct, and -5.7pct compared to 2023. The decline in revenue growth is mainly due to the company's continued strategy of increasing the ratio of low cost, low risk, and low return customers, and interest spreads declined marginally, but other non-interest growth was impressive. In view of the decline in interest spreads, we forecast an EPS2.45/2.51/2.57 yuan for 24-26, and a BVPS forecast value of 22.47 yuan for 24, corresponding to 0.48 times PB. Comparatively, the company's 24-year Wind unanimously predicted an average PB value of 0.47 times. As a benchmark in retail business, the company should enjoy a certain valuation premium, giving a 24-year target PB0.60 times, a target price of 13.48 yuan, and maintaining a “buy” rating.
Interest spreads have declined marginally, and strategic transformation is advancing
The growth rates of total assets, loans, and deposits at the end of March were +5.0%, +1.2%, and -0.1%, respectively, the same as at the end of 23, -1.1 pct and -3.3 pct. The January-March net interest spread was 2.01%, -37 bps compared to 2023 and -10bp compared to the 23q4 single quarter. The return on income-bearing assets and interest-bearing debt cost ratios for January-March were 4.25% and 2.30%, respectively, compared with -33 bps and +3 bps in 2023. Due to LPR cuts, concessions to the real economy, and active asset restructuring, the January-March loan yield declined 49 bps to 4.94% from '23. Due to continued high interest rates in the foreign currency market and the regularization of RMB deposits, the Q1 deposit cost ratio was +2bps compared to 23 years.
The company took the initiative to increase credit investment in low-risk businesses. Operating loans/consumer loans/credit card loans were -5.4%/-6.3%/-6.1% respectively at the end of 23, and the strategy of low cost, low risk, and low return was advanced in depth.
Other non-interest increases, and revenue growth is under pressure
January-month non-interest income was +4.9% year-on-year, and the growth rate was +11.0pct compared to 2023. Among them, Q1 intermediate business revenue was -19.1% year-on-year, and the growth rate was -16.5pct compared to 2023. Revenue from wealth management fees and commissions was -54.3% year-on-year to $1.07 billion. It is mainly affected by the reduction in fees on banking insurance channels and the decline in equity fund sales.
Q1 Other non-interest income was +56.7% YoY, with a growth rate of +68.3pct compared to 2023. Other non-interest growth rates are impressive, mainly due to increased profit and loss from changes in fair value of bond investment income and transactional financial instruments. The number of retail/wealth/private customers at the end of March was +0.9%/+7.9%, respectively, and retail/private AUM was +8.2%/+7.8%, respectively.
Fluctuating asset quality and declining credit costs
The non-performing loan ratio and provision coverage ratio at the end of March were 1.07% and 262%, respectively, compared with +1bp and -16pct at the end of 23. The non-performing rate for public and retail sales was +3bp and +4bp at the end of 23. The defect rate for public real estate was +0.32pct to 1.18% at the end of '23. In terms of retail loans, the bad rate of credit card receivables and mortgages was the same as at the end of 23, but the non-performing ratio of consumer/operating loans was +16bp/+5bp at the end of 23. The attention rate was +2bp to 1.77% at the end of 23, and the overdue rate was the same as at the end of 23. The annualized credit cost in Q1 was 1.09%, -0.62pct; the Q1 annualized bad generation rate was -0.38pct to 1.57% compared to 23Q4.
Risk warning: Economic recovery fell short of expectations, and the deterioration in asset quality exceeded expectations.