Matters:

On the evening of October 30, the Postbank disclosed its 2024 three-quarter report. 24Q1-3 achieved operating income of 260.35 billion yuan, +0.09% year-on-year; net profit to mother of 75.82 billion yuan, +0.22% year-on-year. Defect rate 0.86%, provision coverage rate 301.88%.

Commentary:

Interest spreads remained strong and resilient, supporting a positive year-on-year increase in net interest income. At the same time, good cost control supported a positive year-on-year increase in net profit. 1) 24Q1-3 revenue was +0.09% year over year, with net interest income of 72.07 billion yuan in a single quarter, up 0.74% year on year, up 1.08% month on month. Among them, the scale growth rate slowed slightly, while interest spreads continued to maintain strong resilience. 3Q24 single quarter net interest spread 1.85%, -1 bp month-on-month, still superior to comparable peers; 2) The “integration of reporting procedures” policy still disrupted net fee revenue. The cumulative year-on-year increase was -12.7%, and the negative increase converged with H1. The company actively responded to the impact of insurance agency policy adjustments., continue to promote intermediary business Diversified development, deepening the “commercial bank+investment bank+investment” joint operation, and achieving relatively rapid growth in revenue from investment banking, transaction banking, corporate finance, etc. Other non-interest income increased 0.52% year over year, with investment income and fair value change income totaling 24.92 billion yuan, up 4.7% year on year; 3) Net profit to mother in the first three quarters turned positive year on year. The company continued to control costs and expenses, and the growth rate of business management expenses slowed to 1.51% year on year.

Loans have maintained steady growth, with new retail credit accounting for 40%, continuing to be at the forefront of the industry. 24Q1-3 Postbank loans increased 9.5% year over year, and the growth rate slowed slightly, but the overall growth rate remained high. In Q3, 120.611 billion new loans were added in a single quarter, a year-on-year decrease of 77.2 billion. Of these, public/retail/notes increased by 56.7/36.8/27.1 billion respectively, a year-on-year decrease of 284/a decrease of 572/an increase of 8.4 billion yuan over the same period last year. The company focused on credit investment in key areas. The “three rural” and “two small” loan balances continued to increase by 1.12 percentage points compared to the end of the previous year, driving reasonable loan growth. The loan balance for inclusive small and micro enterprises was 1.58 trillion yuan, accounting for more than 18% of total customer loans, and the ratio of total loans to total assets continued to increase 0.61 percentage points from the end of the previous year.

Interest spreads for the 3Q24 quarter fell by only 1 bps month-on-month, and the debt-side interest rate improved quite well. According to our time point calculation, the 3Q24 net interest spread fell 1bp to 1.85% month-on-month, and interest spreads still have an advantage over peers. 1) Asset side: 3Q24 yield on interest-bearing assets fell 2 bps to 3.29% month-on-month, and is still expected to be affected by lower emerging prices and structural factors; 2) Debt side: 3Q24 single-quarter interest-bearing debt cost ratio fell 3 bps to 1.44% month-on-month, mainly by optimizing debt types, terms, and interest rate structures, the Postbank consolidated the debt moat.

Asset quality is generally stable. The low non-performing rate increased slightly from month to month, and is still at a superior level in the industry. The 3Q24 Postbank non-performing rate was 0.86%, up slightly by 2 bps from month to month. The net annualized bad generation rate in a single quarter was 0.62%, which rebounded slightly from a low level. The net generation of bad caliber in the parent bank disclosed by the company was 0.93% in a single quarter, and the cumulative net generation of bad behavior was generally stable at 0.79% in the first three quarters. Looking at forward-looking indicators, the attention rate was +9 bps to 0.90% month-on-month, and the overdue rate was +20 bps to 1.10% compared to the beginning of the year. The Postbank has always had a light asset quality burden and strict risk control. It is expected that asset quality will remain stable in the future. The overall provision coverage rate remained stable at 301.88%, the loan ratio decreased by 13 bps to 2.59% from the previous month, and the overall risk absorption capacity was still strong.

Investment advice: Postbank's net interest income is growing steadily, interest spreads are resilient, and asset quality remains stable. The Postbank's differentiated development of five major growth poles, including “three rural” finance, small and micro finance, active credit, wealth management, and financial markets. The retail strategy is strong, the development path is clear, and the wide coverage of 0.04 million “own+agency” outlets has consolidated its retail advantage. Based on the company's business situation and current macro environment, and considering adjustments in savings agency fees, we predict that the company's 2024-2026 revenue growth rate will be 1.2%/6.1%/7.8% (previous value 1.7%/5.7%/8.1%), and the 2024-2026 net profit growth rate will be 4.6%/3.5%/6.7% (previous value 6.3%/4.0%/8.3%). The current stock price corresponding to 2024E/2025E PB is 0.62x/0.57x, considering the accelerated implementation of current policies to boost confidence and expectations Also, referring to estimates from other major banks, we gave a 25-year target PB of 0.80X and a corresponding target price of 7.36 yuan, maintaining a “recommended” rating.

Risk warning: Bank interest spreads are under further pressure due to insufficient economic growth momentum. Bank credit investment fell short of expectations.