Postal Savings Bank of China's (PSBC) attributable net profit declined 1.7% YoY in 2Q24 after decreasing 1.3% YoY in 1Q24, lower than our expectation, mainly due to weak growth in operating income, decline in NIM and increase in operating expense. Its operating income decreased 0.1% YoY in 1H24 after increasing 1.4% YoY in 1Q24. Despite the negative growth in operating income, its operating expense increased 4.2% YoY in 1H24. PSBC maintained outstanding asset quality in 1H24 as its NPL ratio might be still at the lowest level among peers while its allowance to NPL was at the high-end level. As of end June 2024, its loan-to-deposit ratio reached 56.7%, which might be still at the lower end of banking sector. As of end June 2024, its loans/deposits increased 6.4%/4.8% from end 2023.
Key Factors for Rating
Outstanding asset quality maintained in 1H24. Its NPL ratio reached 0.84% at end June 2024, against 0.84% at end March 2024 and 0.83% at end December 2023. Its NPL ratio remained at the lowest level among peers in 1H24. Its allowance to NPLs reached 325.6% at end June 2024, against 326.9% at end March 2024 and 347.6% at end December 2023. We expect its NPL to stay at 0.84% in 2024.
NIM declined in 1H24. Net interest income increased 1.8% YoY in 1H24, mainly due to the decline in net interest margin (NIM). We noted that its NIM reached 1.91% at end June 2024 and 1.92% at end March 2024, down 10bps and 9bps from end December 2023. We expect its NIM to drop 13bps in 2024.
Fee and commission income dropped in 1H24. Its net fee and commission income decreased 16.7% YoY in 1H24 after declining 18.2% in 1Q24. As of end December 2023, the balance of total assets under management (AUM) from retail customers reached about RMB16.23trn, up 6.5% YTD.
Valuation
Its H shares are now trading at 0.45x 2024E P/B, which is undervalued. We believe the bank should be trading at a higher P/B valuation, thanks to its outstanding asset quality and higher earnings growth potential. We decreased our target price from HK5.70 to HK$5.69, based on about 0.6x 2024E P/B. Maintain BUY rating.
