Core views
Currently, Ping An Bank is in the process of business transformation. The increase in the proportion of medium- and low-risk customer groups has put some pressure on Ping An Bank interest spreads. On the other hand, the formal implementation of the “integrated reporting and banking” banking insurance channel also had a significant negative impact on its revenue, and the decline in revenue in the first quarter was further expanded. However, benefiting from a significant decline in credit costs, the profit growth rate has remained stable.
Looking ahead, considering the concentrated release of various negative effects in the first quarter, 1Q24 revenue is expected to be the lowest for the whole year, and profits will maintain steady growth. In terms of dividends, Ping An Bank's investment has maintained a slow growth rate, and its more abundant core Tier 1 capital will further guarantee its subsequent high dividend level of around 30%.
occurrences
On April 1**** An Bank announced its 2024 quarterly report, achieving operating income of 38.77 billion yuan, a year-on-year decrease of 14.0%; net profit to mother of 14.932 billion yuan, an increase of 2.3% over the previous year. The 1Q24 non-performing rate was 1.07%, up 1bp from quarter to quarter; the 1Q24 provision coverage rate fell 16.0pct to 261.66% quarter-on-quarter.
Brief review
1. During the business transformation period, the decline in revenue increased under pressure from interest spreads. Ping An Bank achieved revenue of 38.77 billion yuan in 1Q24, a year-on-year decrease of 14.0%. Currently, Ping An Bank is in a period of performance transformation. The decline in the investment weight of high-risk pricing assets has had a major negative impact on its interest spreads. At the same time, due to more careful investment principles, the slowdown in scale growth has also had a certain drag on net interest income. The decline in Ping An Bank's net interest income in the first quarter further expanded to 21.7% compared to 2023. In addition, due to the integration of banking insurance channels and the decline in equity fund sales, Ping An Bank's wealth management business was under serious pressure. 1Q24 decreased 54.3% year over year to 1,074 billion yuan, net handling fee revenue decreased 19.1% year on year, and the decline was further expanded from 2023. In terms of other non-interest income, benefiting from the good performance of the capital market, Ping An Bank's investment income and fair value change profit and loss all achieved significant year-on-year increases, driving 1Q24's other non-interest income up 56.7% year on year, contributing to revenue.
During the business transformation process, credit costs dropped significantly, and profits remained steady. Ping An Bank's 1Q24 asset impairment losses were drastically reduced by 35% year-on-year, supporting a 2.3% year-on-year increase in profit to 14.932 billion yuan. In terms of performance attributions, low provision, other net income, and growth in scale contributed positively by 15.8%, 5.2%, and 2.0% respectively, while narrowing interest spreads and middle income pressure contributed negatively by 17.4% and 3.8% respectively, dragging down performance.
Looking forward to the future, there is still some pressure on current stock bank interest spreads and revenue. It is expected that Ping An Bank's annual revenue will continue to bottom out, but due to the concentrated release of negative effects such as LPR repricing and dropshipping rate cuts in the first quarter, 1Q24 revenue growth may be the lowest in the whole year, and performance will benefit from improvements in credit costs and achieve slight positive growth.
2. The credit investment structure continues to be refined, focusing on medium- and low-risk customer groups, and interest spreads are still bottoming out. As business transformation continues to advance, the increase in the proportion of medium- and low-risk customer groups has put some pressure on Ping An Bank's asset pricing. Its 1Q24 net interest spread was 2.01%, down 10 bps from quarter to quarter, and 62 bps from year to year. Among them, the yield on interest-bearing assets was affected by downward pressure on loan pricing, falling 9 bps to 4.25% from quarter to quarter, while the cost of interest-bearing debt increased 2 bps to 2.30% from quarter to quarter.
On the asset side, improve the public sector and optimize the structure. In the first quarter, Ping An Bank continued its investment strategy for the second half of 2023 and continued to strengthen its investment in medium- and low-risk customer loans. The scale of retail loans with relatively high risk pricing declined markedly. Among them, operating loans, consumer loans, and credit card accounts receivable decreased by 5.4%, 6.3%, and 6.1% quarterly, respectively, and the total retail loan size decreased by 5.0% quarterly. In terms of public investment, the four basic industries of infrastructure, automotive ecology, utilities, and real estate added 109.102 billion yuan in loans in the first quarter, with a year-on-year increase of 44.5%. New manufacturing, new energy, and new lifestyle loans increased by 55.726 billion yuan. The scale increased 74.1% year on year, driving 12.8% quarterly increase in public loans, which is the main source of scale expansion. In terms of price, retail and public loan prices fell 6 bps, 10 bps to 6.04%, and 3.79%, respectively, and total loan pricing fell 14 bps to 4.94% from quarter to quarter, and asset pricing was still under pressure.
On the debt side, the trend of regularization is relatively slow, and deposit costs are still rigid. In terms of the average daily deposit structure, the average daily balance of Ping An Bank 1Q24 term deposits rose 0.1 pct to 66.2% from quarter to quarter. The upward trend declined markedly from 0.9 pct month-on-month in 4Q23, and the trend of deposit regularization slowed down. In terms of costs, due to continued high interest rates in the foreign currency market and the trend of deposit regularization, deposit costs at Ping An Bank rose 3 bps to 2.19% quarterly in 1Q24. Among them, corporate term deposit costs increased by 11 bps to 2.81%, driving corporate deposit costs to rise by 3 bps to 2.15% from quarter to quarter, which is the main reason for the rise in deposit costs, while retail demand and term deposit costs remained relatively stable at 0.20% and 2.89%, respectively.
3. Bad certification standards are strict, and retail risks are revealed as scheduled. In 1Q24, Ping An Bank's non-performing rate increased by 1 bp to 1.07% from quarter to quarter, plus the write-off failure rate (estimated value) decreased by 80 bps to 1.76% from quarter to quarter, and credit costs (estimated value) decreased by 115 bps to 1.29% from quarter to quarter. The share of non-performing loans overdue by Ping An Bank for 90 or more days in 1Q24 increased by 2 bps and 3 bps from quarter to quarter to 0.61% and 0.77%, respectively, and the criteria for determining bad performance remained strict. In terms of retail risk, consumer and operating loans are the main sources of risk exposure for Ping An Bank. The non-performing rate increased by 16 bps and 5 bps from quarter to quarter to 1.39% and 0.88%, respectively, and related risks were revealed as scheduled.
In terms of forward-looking indicators, Ping An Bank's 1Q24 overdue rate and attention rate remained flat compared to the end of the previous year, rising 2 bps to 1.42% and 1.77%, respectively, and the potential risk remained stable. In terms of provision coverage, Ping An Bank's 1Q24 provision coverage rate fell 16 pcts to 261.66% quarterly. Although there was a decline from the end of the previous year, the absolute value is still at a relatively leading level in stock banks, and its risk compensation capacity is solid and stable.
4. The size of the customer base has grown steadily, and insurance income from consignment insurance has declined significantly. As of 1Q24, Ping An Bank retail customer AUM and private banking customer AUM increased by 1.3% and 0.3% from the beginning of the year to 4.08 trillion and 1.92 trillion yuan respectively; 1,4066 million wealth customers and 91,400 private bank customers, up 2.1% and 1.3% respectively from the beginning of the year. Affected by various rate reductions. Ping An Bank's wealth management business revenue in the first quarter decreased by 54.3% year on year to 1,074 million yuan. Among them, escrow insurance income dropped the most, falling 81% year on year to 248 million yuan.
5. There is plenty of capital, and there is a bottom for dividends. Ping An Bank's cash dividend ratio rose to 30% year on year in 2023. From the perspective of capital adequacy ratio, Ping An Bank's 1Q24 core Tier 1 capital adequacy ratio increased 37 bps to 9.59% quarter over quarter, and Tier 1 capital adequacy ratio increased 36 bps to 11.26% quarterly, which is at a high level among stock banks. From the perspective of scale expansion, Ping An Bank's loan size increased by 1.2% and 2.4% year-on-year in 1Q24 and 2023, respectively. The growth rate was significantly lower than in 2022. Considering its abundant core Tier 1 capital and credit investment that maintained a slow growth rate, it is expected that Ping An Bank's cash dividend rate will continue to remain around 30% in the future. On the other hand, Ping An Bank released the “2024-2026 Shareholder Return Plan” on April 19, announcing that its 2024-2026 cash dividend rate will remain between 10% and 35%, and that in addition to annual profit distribution, medium-term cash dividends can also be paid, and the high level of dividends is expected to continue.
6. Investment advice and profit forecast: Currently, Ping An Bank is in the business transformation stage. The increase in the proportion of medium- and low-risk customer groups has put some pressure on Ping An Bank interest spreads. On the other hand, the formal implementation of the “integrated reporting and banking” banking insurance channel also had a significant negative impact on its revenue, and the decline in revenue in the first quarter further expanded. However, benefiting from a significant decline in credit costs, profit growth has remained stable. Looking ahead, considering the concentrated release of various negative effects in the first quarter, 1Q24 revenue is expected to be the lowest for the whole year, and profits will maintain steady growth. In terms of dividends, Ping An Bank's investment has maintained a slow growth rate, and its more abundant core Tier 1 capital will further guarantee its subsequent high dividend level of around 30%. Revenue growth is expected to be -8.0%, 4.2%, and 6.6% in 2024, 2025, and 2026, and profit growth rates of 2.4%, 5.4%, and 9.8%. The dividend corresponding to the 2023 dividend is 6.69%, which is higher than the industry level. Currently, Ping An Bank's stock price is only 0.48 times 24-year PB. The valuation is severely suppressed by factors such as insufficient expectations for economic recovery and pessimistic market sentiment. The cost performance ratio is outstanding, and the purchase rating is maintained.
7. Risk warning: (1) Economic recovery has fallen short of expectations, corporate solvency is weakening, and some enterprises with poor credit levels may be at risk of default, leading to the risk of bad bank exposure and a sharp decline in asset quality. (2) The concentrated exposure of risks in key areas such as real estate and local financing platform debt has had a major impact on the quality of banks' assets and greatly weakens banks' profitability. (3) The strength of the credit leniency policy falls short of expectations, and the rapid economic development in the region where the company operates is unsustainable, thus having a significant adverse impact on the company's credit investment. (4) The effects of retail transformation fell short of expectations, and large-scale fluctuations in the equity market affected the company's wealth management business.