Matters:
The Postbank released its 2024 quarterly report. In 24Q1, it achieved operating income of 89.4 billion yuan, a year-on-year increase of 1.4%, and realized net profit to mother of 25.9 billion yuan, a negative increase of 1.3% year-on-year, and an annualized weighted average ROE of 12.36%.
At the end of the first quarter of '24, total assets reached 16.3 trillion yuan, up 3.85% from the beginning of the year, of which total loans increased 4.58% from the beginning of the year. Deposits increased 4.82% from the beginning of the year.
Ping An's point of view:
Profit increased slightly, and revenue growth remained stable. The net profit growth rate of the Postbank in the first quarter of '24 fell 2.57 percentage points to -1.3% compared to the full year of '23. The increase in provisions led to a slight decline in profit growth. Credit impairment losses in the first quarter fell 18.9% (-25.9%, 23A) year on year. In terms of revenue, the revenue growth rate in the first quarter fell 0.82 percentage points to 1.44% from the full year of '23. The recovery in non-interest income, especially the increase in the contribution of other non-interest income, supported the stability of revenue. Other non-interest income in the first quarter increased 16.7% (-1.45%, 23A) year on year. Furthermore, it is not easy for the company's net interest income to maintain a positive increase in the context of declining interest spreads. The year-on-year increase in the first quarter was 3.1% (3.0%, 23A). The differentiation advantages brought about by the continuous deepening of the “five major differentials” growth were remarkable, and the resilience of asset interest rates in the county area supported the steady growth of net interest income. Due to the impact of the “integrated reporting and banking” policy, the decline in agency insurance business revenue dragged down a negative year-on-year increase of 18.2% (-0.64%, 23A) in the first quarter, but the company's revenue in investment banking, transaction banking and other sectors is expected to maintain a relatively rapid growth rate.
The decline in interest spreads was manageable, and the expansion of capital liabilities remained steady. The company's annualized net interest spread for the first quarter was 1.92% (2.01%, 23A). The decline is expected to be at the leading level of comparable industry, and the negative impact of the decline in asset-side pricing levels continues. In terms of size, the company's total assets increased 11.1% (+11.8%, 23A) year on year at the end of the first quarter, of which the loan size increased 11.8% (13.0%, 23A) year on year. The decline in loan growth was mainly due to the company's increased focus on loan quality. Retail demand continues to be insufficient, and public loans were still the main resource trend in the first quarter. At the end of the first quarter, corporate loans and retail loans increased 18.1%/10.2% year-on-year respectively, and the share of public loans at the end of the first quarter increased 1.4 percentage points to 41% compared to the beginning of the year. On the debt side, the year-on-year growth rate of deposits at the end of the first quarter increased 0.7 percentage points to 10.5% compared to the end of '23, maintaining a rapid increase.
Asset quality pressure is manageable, and provision levels have declined slightly. The Postbank's non-performing rate at the end of the first quarter rose 1BP to 0.84% from the end of the year 23, the attention rate at the end of the first quarter rose 3BP to 0.71% from the end of 23, and the overdue rate increased by 8BP to 0.99% from the end of 23. Although there has been an increase, the absolute level is still low. Furthermore, the annualized non-performing loan generation rate in the first quarter decreased by 4BP to 0.81% compared to the end of '23. Overall, we expect the quality of the company's assets to remain at the best level in the industry. In terms of provision, provision coverage and loan coverage at the end of the first quarter decreased by 20.7 pct/13 bps to 327%/2.75% at the end of 23. Although there has been a decline, the absolute level is still high, and risk offsetting capacity remains stable.
Investment advice: Focus on retail restoration and continued differentiated competitive advantage. As the only major state-owned bank that positions itself as a retail bank, Postbank maintains a wide range of customers with a unique model of “ownership+agency”. The regional advantages of the county and the central and western regions continue to be stable, and the customer base is solid and reliable. Based on the company's quarterly report, we maintain the company's 24-26 profit forecast. The company's 24-26 EPS is expected to be 0.88/0.93/0.98 yuan, respectively, and the corresponding profit growth rate is 1.7%/4.9%/5.2%, respectively. Currently, the PB corresponding to 24-26 PB is 0.56x/0.52x/0.48x, respectively. Taking into account the company's solid customer base on the debt side, potential improvement space on the asset side, and the asset quality performance of leading peers, we maintain the company's “Highly Recommended” rating.
Risk warning: 1) The economic downturn has caused the pressure on the asset quality of the industry to rise more than expected. 2) The decline in interest rates caused industry interest spreads to narrow beyond expectations. 3) Increased cash flow pressure on housing enterprises has triggered a rise in credit risk.