Core views:

Ping An Bank released its 2024 semi-annual report. Our comments are as follows: 24H1 revenue, PPOP, and net profit to mother increased by -13.0%, -14.3%, and 1.9%, respectively. The growth rates changed by 1.08pct, +0.70pct, and -0.32pct respectively compared to 24Q1. In terms of performance drivers, growth in scale, provision, other income and expenditure, and reduction in effective tax rates have contributed positively, with narrowing net interest spreads being the main drag.

Highlights: (1) Deposit growth rebounded month-on-month, and retail demand deposits increased 35% year-on-year. Deposits at the end of 24Q2 increased 5.6% year over year, up from the end of 24Q1. Although 24Q2 had a negative increase in active term deposits, there was a 15% year-on-year increase in the official term, 35% year-on-year increase, and an increase of 99 billion yuan in a single quarter in 24Q2, corresponding to a 9 bps month-on-month improvement in personal deposit cost ratios in 24Q2, mainly due to the expansion of financial management and wage payment scenarios. (2) Asset quality is stable, and provision coverage is increasing month-on-month. The non-performing loan ratio at the end of 24Q2 was 1.07%, the same as 24Q1. The non-performing ratio for public loans was stable. The retail non-performing rate rebounded slightly by 1 bp compared to the end of 23Q1, but bad credit cards fell 7 bps from the end of 23Q1.

The attention rate at the end of 24Q2 was 1.85%, up 8 bps from the end of 24Q1, and an overdue rate of 1.39%, down 2 bp from the end of 24q1. The 24H1 defective generation rate was estimated to be 2.22%, down 1 bp from the previous year. The provision coverage rate at the end of 24Q2 was 264.26%, up 2.6 pct from the end of 24Q1. (3) High growth in other non-interest income. The company's 24H1 other non-interest income increased 56.7% year over year, mainly contributing from bond investment income and profit and loss from changes in the fair value of transactional financial assets. (4) The company announced an interim cash dividend of 0.246 yuan/share, corresponding to a dividend rate of 20%.

Concern: (1) Negative growth in 24Q2 loans. The 24Q2 loan order shrank by 68.6 billion yuan in the quarter. Personal loans such as consumer loans, credit cards, and operating loans continued to shrink under risk appetite adjustments. Public loans maintained positive growth. At the end of 24Q2, there was a 21% year-on-year increase, and loans to infrastructure, wholesale and retail, construction industries increased rapidly. (2) Interest spreads continue to narrow. The company's 24H1 net interest spread was 1.96%, 5 bps narrower than 24Q1. On the asset side, the yield on 24H1 interest-bearing assets was 9 bps narrower than 24Q1. Among them, the yield on loans narrowed by 15 bps and the yield on 24Q2 retail loans fell 29 bps month-on-month; on the debt side, the cost ratio of all types of 24Q2 deposits improved significantly month-on-month, effectively relieving the pressure on interest spreads. (3) Negative increase in net revenue from handling fees. 24H1's net revenue from fees and commissions increased -21% year over year, and agent and bank card fees dropped sharply year over year.

Profit forecasting and investment advice: The company's risk appetite is adjusted, and profitability is under phased pressure. Q2 Asset quality was stable better than expected, deposit costs improved, and profit growth showed signs of marginal stabilization.

The transformation continues, and we are waiting to start again. The company's net profit growth rate for 24/25 is 1.3%/1.9%, EPS is 2.28/2.32 yuan/share, respectively. The current stock price is 4.40X/4.32X for 24/25 PE, respectively, and 0.45X/0.42X for 24/25 PB respectively. Taking into account the company's historical valuation center and fundamentals, maintain the company's reasonable value of 17.91 yuan/share, corresponding to a 24-year reasonable PB valuation of about 0.8X, and maintain the purchase rating.

Risk warning: (1) the quality of retail assets deteriorated due to a decline in economic growth exceeding expectations; (2) deposit costs rose above expectations; (3) interest rate fluctuations exceeded expectations; (4) policy regulation exceeded expectations.