Structural adjustments have been accelerated, and mid-term dividends have been implemented

Ping An Bank's net profit, operating income, and PPOP in January-June were +1.9%, -13.0%, and -14.1%, respectively. The growth rate was -0.3 pct, +1.1 pct, and +0.8 pct compared with January-March. The annualized ROE and ROA in January-June were +-0.56pct and -0.03pct to 11.88% and 0.91%, respectively. The 2024 mid-term profit distribution plan was announced. It is proposed to distribute cash dividends of 2.46 yuan (tax included) to all shareholders for every 10 shares, with a cash dividend ratio of 20.0%. In view of the decline in interest spreads, we forecast an EPS2.44/2.55/ 2.66 yuan for 24-26, and a BVPS forecast value of 22.46 yuan for 24-26, corresponding to 0.45 times PB. Comparatively, the company's 24-year wind unanimously predicted an average PB of 0.46 times. As a benchmark in retail business, the company should enjoy a certain valuation premium, giving a 24-year target PB 0.56 times, a target price of 12.58 yuan, and maintaining a “buy” rating.

Revenue growth is under pressure, and investment returns are growing

Non-interest income in January-June was +8.0% year-on-year, and the growth rate was +3.1 pct compared to January-March. Intermediate business revenue was -20.6% year-on-year, and the growth rate was -1.5pct compared to January-March. The company's “investment transaction+customer business” is driven by two wheels to increase research and development of trading strategies, seize structured trading opportunities, and increase investment returns. 24H1's other non-interest income was +56.7% year-on-year, with fair value changes +139% year-on-year, and investment income growth was impressive.

Wealth management fee revenue was 2.186 billion yuan, or -47.6% year over year. It was mainly affected by factors such as bank insurance channel fee cuts and equity fund sales decline. Agency personal insurance/wealth management revenue was -79%/+22%, respectively. The non-capital protected financial balance at the end of June was 1.05 trillion yuan, +18.3% year-on-year.

Structural adjustments continued, and interest spreads declined marginally

The growth rates of total assets, loans and deposits at the end of June were +4.6%, -0.7%, and +5.8%, respectively, compared with -0.4pct, -2.0pct, and +5.9pct at the end of March. The company invigorated the public vote, gave full play to the Group's comprehensive financial advantages, and created a comprehensive “commercial bank+investment bank+investment” solution. At the end of June, the ratio of public loans was +21.1%.

Retail loans were -11.8% year-on-year, mainly due to the company adapting to changes in the external business environment and continuing to actively adjust the loan business structure to establish a solid basic market for the healthy development of medium- to long-term business. The net interest spread for 24Q2 was 1.91%, -10 bps month-on-month compared to 24Q1. The Q2 loan yield/deposit yield decreased by 29 bps and 7 bps from Q1, respectively. The deposit listing interest rate reduction dividends were gradually released. The decline in loan yield is related to the company's active restructuring and increasing the share of mortgage loans. The January-June net interest spread was 1.96%, compared to January-May-5 bps.

Asset quality is stable, and hidden indicators fluctuate

The defect rate at the end of 24H1 was +1.07%, the same as at the end of March. The provision coverage rate was 264%, and +3pct compared to the end of March.

Retail pressure dropped the stock of high-risk customers. The non-performing rate of personal loans at the end of June was +1bp to 1.42% compared to the end of March. This was mainly due to a marginal improvement in the non-performing rate of housing mortgages and consumer loans compared to +14 bps and +7 bps at the end of March, while credit cards and operating loans improved marginally. The quality of public loan assets was stable, and the non-performing rate was the same as at the end of March. Concerned loans accounted for +13bp compared to 1.85% at the end of March, with hidden risk indicators fluctuating. The annualized credit cost was -25bp to 1.40% year over year, and the estimated 24Q2 defect generation rate was +4bp to 1.61% compared to 24Q1.

Risk warning: Economic recovery fell short of expectations, and the deterioration in asset quality exceeded expectations.