Description of the event
The Postbank released the 2024 Quarterly Report. Revenue for the first quarter grew 1.4% year on year, net profit to mother grew -1.3% year on year, and the non-performing loan ratio at the end of the first quarter was 0.84%, up 1BP from month to month, provision coverage rate was 327%, down 21pct from month to month.
Incident comments
Revenue & interest bucked the trend and had a high cash content, and it was the only major bank with positive growth. Since last year, the revenue of some major state-owned banks has begun to decline, while the Postbank has maintained positive growth. Net interest income grew at a rate of 3.1% in the first quarter, which is invaluable against the backdrop of a continued decline in net interest spreads across the industry. This is mainly due to the fact that net interest spreads have become more resilient compared to peers since last year, and debt costs have improved. Non-interest income fell 4.8% year on year, and main handling fees fell 18.2% year on year, in line with market expectations, mainly affected by fee cuts in agency insurance business. Other non-interest income, such as investment, increased by 16.7%. It did not follow the example of the interbank industry to release large amounts of investment income to drive revenue. The revenue growth content was high. Net profit due to a year-on-year decline of 1.3%. The main special postal savings agency fee increased due to the expansion of deposit size, causing the PPOP growth rate to be significantly lower than the revenue growth rate. However, it has now triggered a mechanism to reduce agency rates. If lowered in the future, profit pressure will ease somewhat.
The scale and efficiency scale has expanded, and the growth rate of general loans continues to lead. Loans at the end of the first quarter increased 4.6% compared to the beginning of the period, and there was a decrease year-on-year increase under a high base, which is in line with industry commonalities. However, general loans without notes increased by 5.7%, with public loans growing by 8.3% and retail loans by 3.8%. Retail loans achieved a slight increase over the same period last year. Since the fourth quarter of last year, retail demand has recovered, and investment has maintained a recovery trend. The growth rate of general loans also led the market in 2023. Maintaining efficient table expansion is essential to support net interest spreads. Deposits increased by 4.8% compared to the beginning of the period. It is expected that the loan-to-deposit ratio will continue to rise this year, improving profitability.
The decline in net interest spreads was less than that of peers, and deposit costs are expected to continue to improve. Net interest spread for the first quarter was 1.92%, down 17BP year on year, down 9BP from the full year of 2023. The decline was relatively small among major banks. The estimated yield on interest-bearing assets is 3.42%, down 14BP from the full year of 2023. It is expected to be mainly affected by interest rate cuts on retail assets such as mortgages. Looking ahead to the whole year, retail loan yields are expected to remain under downward pressure, but major state-owned banks may take the lead in making adjustments. The estimated interest-bearing debt cost ratio is 1.52%, down 5BP from the full year of 2023. Deposit costs are expected to improve. The reduction in debt costs is a sustainable trend. Interest rates on deposit listings in the banking sector may continue to be lowered in the future. The share of Postbank deposits and time deposits is higher than that of peers, and benefits the most during the deposit interest rate reduction cycle.
Asset quality is generally stable, and the rate of new generation of bad products has declined marginally. The Postbank's non-performing rate has remained low for a long time, rising 1BP to 0.84% month-on-month at the end of the first quarter, but the new bad generation rate decreased by 4BP to 0.81% compared to the full year of 2023. This level is currently excellent among major retail banks. The overall asset quality index of the retail credit market has fluctuated since last year. It is expected that there will still be some pressure this year. This is common to the industry, but there are differences in the quality of the customer base of different banks. We expect Postbank's customers to be relatively high quality, and the fluctuation in asset quality is manageable. At the same time, real estate risk is still superior to that of peers. At the end of 2023, the non-performing ratio of real estate loans to public loans was 2.45%, the absolute lowest among major banks. At the end of the first quarter, provision coverage fell 21pct to 327% month-on-month. The absolute value was still ahead of major state-owned banks, reducing provisions to feed back profits under the downward pressure of PPOP.
Investment advice: A recovery in performance can be expected, and the dividend ratio is very attractive. In the macroeconomic pressure environment of the past two years, the Postbank, as a major retail bank, has had a hard time maintaining continuous positive revenue growth. In the future, as the retail market stabilizes, agency rates are adjusted, and net interest spreads are fully adjusted, we judge that performance will gradually pick up. From a long-term perspective, Postbank remains a model of a robust retail bank with leading resource endowments. Revenue is expected to grow 0.6% and net profit to mother grow 0.7% in 2024. As of the closing price on April 30, A shares were valued at 0.57x2024PB, 5.9x2024PE, and the dividend ratio reached 5.41%, maintaining a “buy” rating.
Risk warning
1. The downward pressure on the economy increased, and net interest spreads continued to narrow; 2. Asset quality fluctuated, and the non-performing rate increased markedly.