Introduction to this report:

Postbank's 2024 interim report performance was in line with expectations. The growth rate of revenue and net profit declined marginally, the growth rate of deposits and loans was superior to that of peers, and the overall asset quality was stable. We need to pay attention to subsequent risk exposures.

Key points of investment:

Investment advice: Considering the weak demand for loans in the industry since 2024 and the further decline in loan yields, we adjusted Postbank's 2024-2026 net profit growth forecast of 0.03%/2.56%/4.81%, corresponding to BVPS 8.49/9.02/9.59 yuan. The Postbank's debt base is very solid. There is still plenty of room for improvement on the asset side, and the asset quality is superior to that of comparable peers. It maintains a target price of HK$5.0, corresponding to 0.55 times PB in 2024, and maintains an increase in holdings rating.

Revenue and net profit are under marginal pressure. The year-on-year revenue growth rate of 2024Q2 decreased by 3.1 pc to -1.6% compared to Q1. The net interest income growth rate was 0.6%, but the marginal slowdown in scale expansion compounded the narrowing of interest spreads, causing the net interest income growth rate to drop 2.6 pc from month to month; fees and net income from commissions continued to increase negatively, mainly affected by the “integrated reporting” policy, which led to a decrease in agency insurance business revenue; other non-interest net income fell 8.1% year on year, weakening the supporting effect on revenue. On the expenditure side, due to the rapid increase in personal deposits absorbed by agency outlets, savings agency fee expenses increased markedly, and the cost-revenue ratio increased by 2.6 pc in the first half of the year. The net profit growth rate of 2024Q2 decreased by 0.6pc to -1.7% compared to Q1. The revenue growth rate declined marginally, and the increase in cost to revenue ratio combined with a decrease in the strength of provision release, ultimately led to a marginal decline in net profit growth.

Deposits and loans have maintained a relatively rapid growth rate. At the end of 2024Q2, corporate loans increased 10.2% year on year, maintaining double-digit growth, faster than the growth rate of total assets, and the share of loans in assets continued to increase.

Structurally, loans to the public increased 15% year on year, and personal loans also grew steadily. Incremental loans were mostly invested in retail, infrastructure, and personal microfinance (mainly for business purposes).

Deposits at the end of 2024Q2 increased 11.8% year over year, up 1.27pct from the end of 24Q1, with steady growth.

Asset quality was generally stable, and forward-looking indicators fluctuated slightly. At the end of June, the company's non-performing loan ratio was 0.84%, the same as at the end of March. The provision coverage rate was 325.6%, down 1.3 pc from the end of March. The core asset quality index is still superior to comparable peers. By industry, the non-performing ratio for public loans decreased by 1 bps from the beginning of the year, while the non-performing ratio for retail loans increased by 2 bps. The non-performing ratio for mortgage loans and consumer loans decreased by 5 bps and 26 bps, respectively, from the beginning of the year, and the non-performing ratio for personal microfinance loans increased by 15 bps, which dragged down the asset quality performance of retail loans. The attention rate and overdue rate increased by 10 bp and 7 bps, respectively, from the end of March. The forward-looking indicators fluctuated slightly, in line with industry trends.

Risk warning: Demand recovery fell short of expectations, and retail credit risk was widely exposed.