Investment highlights: Ping An Bank released its 2024 quarterly report. Revenue decreased by 14.0% year on year, and net profit to mother increased by 2.3% year on year. The company strengthens asset quality control, increases the collection and disposal of non-performing assets, and drives operating cost reduction and efficiency through digital transformation. We believe that the company's investment focus is shifting from growth to dividend rates, maintaining the company's “superior to the market” rating.

Asset business restructuring and rapid growth in public loans. 24Q1 The company's assets increased 2.5% from the end of the previous year, and loans increased 2.2% from the end of the previous year. Ping An Bank adapted to changes in the external business environment, actively adjusted its asset business structure, and focused on expanding the medium- and low-risk customer base and improving the branch's ability to operate locally. The number of public customers increased by 3% compared to the end of the previous year, and the corporate loan balance increased by 12.2% compared to the end of the previous year. The balance of personal loans decreased by 5.0% from the end of the previous year.

Asset quality control has been strengthened. In 24Q1, the company's defect rate was 1.07%, a slight increase of 1bp from the end of the previous year. The share of concerned loans increased by 2 bps to 1.77% compared to the end of the previous year. The balance of overdue loans remained at 1.42%, provision coverage was 261.66%, and risk offsetting capacity remained good. Ping An Bank continues to strengthen asset quality control and increase the disposal of problematic assets. In 24Q1, loans were written off at 17.687 billion yuan, an increase of 12.1% over the previous year; the total amount of non-performing assets recovered was 8.596 billion yuan, of which 5.992 billion yuan of the principal amount of non-performing assets was recovered; 67.4% of the non-performing asset recovery amount was recovered in cash, and the rest was recovered through physical debt, etc.

Deposit balances have been rising steadily. 24Q1 Ping An Bank's personal deposit balance increased by 3.9% compared to the end of the previous year; customer deposit balances brought about by dropshipping and batch services increased 4.8% from the end of the previous year; and the average daily personal deposit balance in the first quarter increased by 14.2% over the same period last year.

Investment banking business continues to strengthen, strongly supporting physical enterprises. Relying on the advantages of the “product+customer+cross-border” architecture, Ping An Bank actively consolidates the merger and acquisition and syndication ecosystem, provides customers with a one-stop comprehensive solution of “commercial bank+investment bank+investment”, and accurately and strongly supports the real economy. 24Q1 M&A transactions increased 49.9% year over year; syndicated business turnover increased 101.0% year over year.

Investment advice. We forecast EPS of 2.33, 2.51, 2.65 yuan in 2024-2026, and net profit growth rates of -2.61%, 4.04%, and 5.43%. We obtained a reasonable value of 12.63 yuan based on the DDM model; according to the PB-ROE model, the 2024E PB valuation was 0.60 times (0.50 times that of a comparable company), and the corresponding reasonable value was 13.41 yuan. Therefore, the reasonable value range is 12.63-13.41 yuan (corresponding to 2024 PE is 5.42-5.76 times, corresponding PE is 5.19 times for peer companies), maintaining the “superior to market” rating.

Risk warning: The solvency of enterprises has declined, asset quality has deteriorated dramatically; financial supervision policies have undergone major changes.