Key points of investment

Ping An Bank's revenue momentum has stabilized, debt costs have improved markedly, and the results of business adjustments have already been shown.

Overview of the data

Ping An Bank 24H1 net profit increased 1.9% year on year, with a slight decrease of 0.3 pc from 24Q1; revenue decreased 13.0% year over year, and the decline was 1.1 pc lower than 24Q1. Ping An Bank's non-performing rate at the end of 24Q2 was the same as 1.07% at the end of 24Q1, and the provision coverage rate rose 3pc to 264% from the end of 24Q1.

Revenue momentum has stabilized

Ping An Bank 24H1 net profit increased 1.9% year on year, with a slight decrease of 0.3 pc from 24Q1; revenue fell 13.0% year over year, and the decline was 1.1 pc smaller than 24Q1. Revenue momentum stabilized, slightly better than market expectations. In terms of driving factors, it is mainly due to interest spreads dragging down and being supported by other high non-interest rate increases.

(1) Interest spread: 24Q2 net interest spread (daily average, same below) decreased by 9 bps to 1.91% month-on-month, and thanks to the lower base for the same period in 2023, the impact of interest spreads on profits subsided slightly in 24Q2. (2) Other non-interest:

Other non-interest rates increased 56.7% year over year in 24Q2, and the growth rate remained flat month-on-month, continuing to support profits.

Looking ahead to the whole year, as the interest spread base continues to decline during the same period, the impact of interest spreads on profits is expected to continue to improve. The decline in revenue is expected to narrow slightly throughout the year, and profits are expected to maintain positive growth.

Debt improvement is dawning

The 24Q2 net interest spread fell 9bps month-on-month to 1.91%, which is largely in line with expectations. Among them, debt costs have improved markedly, and the results of business adjustments have dawned.

(1) Asset-side returns fell 20 bps to 4.06% month-on-month, due to lower interest rates on loans, compounded by adjustments to retail business, resulting in 14 bps, 29 bps to 3.39% and 5.75% month-on-month, respectively.

(2) The debt-side cost ratio decreased by 10 bps to 2.20% month-on-month. On the one hand, it was due to lower market interest rates and deposit interest rates in the industry. On the other hand, due to Ping An Bank's efforts to consolidate its customer base structure, the deposit structure improved significantly. ① On the interest rate side, active debt interest rates, current deposit interest rates, and time deposit interest rates decreased by 17 bps, 11 bps, and 9 bps, respectively. ② On the structural side, the share of deposits increased, and personal demand deposits increased. The average daily balance of 24Q2 deposits increased 1% month-on-month compared to 24Q1, and the growth rate was 1.4pc faster than debt; among them, personal demand deposits increased 14% month-on-month, indicating that the retail customer base has been significantly consolidated, and the effects of business adjustments have begun to show.

Bad generation is still high

According to dynamic indicators, the 24Q2 real bad TTM generation rate is 2.50%, which continues to be high. It is determined that the generation pressure is still in retail. According to static indicators, the non-performing rate remained flat at 1.07% month-on-month. Among them, the retail loan non-performing rate increased by 1bp to 1.42%, and the non-performing ratio remained flat at 0.66% month-on-month. According to the provision indicators, the provision coverage rate rebounded 3pc to 264% month-on-month. As poor stocks were vigorously cleared, the level of provision increased steadily.

Looking ahead, due to active business adjustments and the upward trend in industrial retail, Ping An Bank's bad generation is expected to remain high, and subsequent trends require continued attention.

Proposed mid-term dividends

Ping An Bank plans to pay 0.246 yuan per share in the medium term, with a dividend ratio of 20%. The purpose of the interim dividend is to increase shareholder returns. Looking ahead, as business performance stabilizes, it is not ruled out that the annual dividend ratio will increase further compared to the interim report.

Profit forecasting and valuation

Ping An Bank's revenue momentum has stabilized, debt costs have improved markedly, and the results of business adjustments have already been shown. Ping An Bank's net profit is expected to increase by 0.69%/1.69%/5.32% year-on-year in 2024-2026, corresponding to BPS22.06/24.25/26.49 yuan. The current price corresponds to 0.45/0.41/0.38 times PB. Maintain the target price of 13.16 yuan/share (dividend adjustment), corresponding to 0.60x PB in 2024, current price space of 31%, and maintain the “buy” rating.

Risk warning: The macroeconomy has stalled, and bad effects have been greatly exposed.