The market capitalization of an Ping an Bank (000001-CN) is about 1.2 China Minsheng Banking Corp, but its net profit in 2019 is only 28.2 billion yuan, which is expected to be only half of China Minsheng Banking Corp's net profit in 2019. It is precisely because the market optimism gives the company a high valuation that Ping an Bank has become one of the most controversial companies in the banking industry.

According to the latest annual results released by Ping an Bank in 2019, KuaiBao, the company achieved a net profit of 28.2 billion yuan in 2019, an increase of 13.6% over the same period last year, and a net profit of 4.6 billion yuan in the fourth quarter, an increase of 5.5% over the same period last year. Obviously, Ping an Bank's net profit growth rate in the fourth quarter is very slow, which is much lower than the net profit growth rate in the previous three quarters.

Next, let's take an overall look at the reasons for the slowdown in the net profit growth of Ping an Bank.

Asset and income analysis

At the end of 2019, the company's assets totaled 3.94 trillion, an increase of 15.2% year-on-year and 6.2% month-on-month. Loans and advances totaled 232 million yuan, up 16.3 percent from the same period last year and 8 percent from the previous year; the balance of deposits absorbed was 2.44 trillion, up 14.5 percent from the same period last year and 6.5 percent from the previous year. The assets of Ping an Bank are growing very fast, which is unmatched by other banks. The growth rate in the fourth quarter is faster than the average in the previous three quarters, and the company continues to maintain a rapid expansion rate.

In 2019, Ping an Bank achieved operating income of 137.958 billion yuan, an increase of 18.2% over the same period last year. Revenue in the fourth quarter was 34.96 billion yuan, up 16.1% from the same period last year, down 1.2% from 35.1 billion yuan.

We can roughly judge from the above two sets of data that Ping an Bank experienced a sharp decline in quarterly net interest margin or non-interest income in the fourth quarter, because the company's asset size grew faster in the fourth quarter.

The possibility of a sharp decline in net interest margin is greater because the company has maintained a relatively rapid expansion rate, and it has become more and more difficult for the debt side of the banking industry to absorb deposits this year. Banks are collecting deposits at high interest rates, while Ping an Bank has to raise deposit rates in order to expand its spread. after all, deposits absorbed by the company increased by 6.5% month-on-month in the fourth quarter, higher than the average of the previous three quarters.

The revenue growth rate of Ping an Bank in the fourth quarter is not slow compared with the same period last year, so the sharp slowdown in revenue growth in the fourth quarter has little to do with the company's expansion and changes in operating income. The remaining data that affect the company's profits are changes in asset quality and operating expenses. Banks' operating expenses generally do not change much. Let's focus on the changes in the quality of the company's assets.

Analysis of bad debts and provisions

By the end of 2019, the non-performing loan ratio of Ping an Bank was 1.65%, down 0.1% from the end of last year (1.75%) and 0.03% from the previous year. The balance of non-performing loans was about 38.3 billion yuan, an increase of 2.2 billion yuan from 36.1 billion yuan in the third quarter. The provision coverage rate was 183.1%, an increase of 27.88% over the end of 2018 and a decrease of 3% from the end of 2018. The provision for asset impairment was 70.13 billion yuan, which was reported to be 67.26 billion yuan in the three quarters, an increase of 2.87 billion yuan. The credit impairment loss of the company for the whole year of 2019 is 59.53 billion yuan, and the impairment loss of credit assets in the first three quarters is 40.99 billion yuan. It is estimated that the impairment loss of credit assets in the fourth quarter is 18.54 billion yuan, and the credit impairment loss in the third quarter is 13.79 billion yuan.

In the fourth quarter, Ping an Bank wrote off bad debts of 18.54 billion yuan to 2.87 billion yuan = 15.67 billion yuan. Coupled with the growth of the company's non-performing loans, the company generated 17.87 billion yuan of new bad debts in the fourth quarter.

Obviously, Ping an Bank increased its efforts to write off bad debts in the fourth quarter, but the company's non-performing loan ratio did not improve, but the provision coverage rate declined slightly, indicating that the company relied on a large amount of write-off of bad debts to suppress bad debts. Don't make the bad debt data look too ugly.

This is also the main reason why Ping an Bank's fourth-quarter net profit figures seem to slow, with the company increasing the write-off of bad debts and the write-off of bad debts, so the growth rate of net profit data has slowed. In addition, the performance of KuaiBao reflects the emergence of two new problems in Ping an Bank. The company's net interest margin and net interest margin are likely to worsen, and are more serious. The rate of newly generated bad debts in the fourth quarter is 0.077%, which is very terrible, and the annualized rate of newly generated bad debts exceeded 3%.

Valuation:

As of January 14, 2020, the price-to-earnings ratio (PE) of the CSB index was 6.74 times, the price-to-book ratio (PB) was 0.84 times, and the dividend yield was 3.71%, of which the price-to-book ratio was at an all-time low.

As of January 14, 2020, the share price of Ping an Bank closed at 16.76 yuan per share, with a dynamic price-to-earnings ratio of 11.5 times, a price-to-book ratio of 1.2 times, and a dividend yield of less than 1% corresponding to 2019 profits.