Company Reports

We lift our fair value estimate for Ping An Bank, or PAB, to CNY 13 per share from CNY 12 to factor in 3- and 5-basis-point increases in our net interest margin, or NIM, forecasts in 2024 and 2025, following management’s more upbeat business outlook. First-half results are on track to meet our 2024 net profit growth estimate of 1.30%. Though revenue continues to contract year on year by 13% versus a 14% decline in the first quarter, net profit growth remains positive at 1.9%. We think the bank is undervalued, trading at 0.45 times 2024 price/book ratio and a 7% dividend yield. While we prefer China Merchants Bank, China Construction Bank, and Industrial and Commercial Bank of China on higher earnings visibility and stable dividends, we believe PAB remains a high-quality bank among our coverage. PAB’s first interim dividend of CNY 2.46 per 10 shares implies payout ratio of 18.5% versus 30% for full-year 2023, but management hinted an upside potential for the full-year payout, which we expect to be in the 20%-30% range. We believe its high dividend yield of 7% versus 3%-5% for peers and improved earnings visibility should support its share price. We expect PAB to be rerated when China’s property market or consumer sentiment recover, given its more cyclical asset mix.

Ping An Bank, or PAB, has been transforming into a retail-focused bank. While we believe it has yet to earn a moat, we believe PAB is a high-quality bank among our Chinese bank coverage. We’re positive on its restructuring, thanks to its ability to leverage its parent’s huge customer base and integrated offline and online financial platform.

Driven by improved investor sentiment for China banks with stable dividend payments and a historic property rescue package introduced in May, the Hang Seng Mainland Banks Index rallied over 20% in the second quarter. But it pulled back sharply on profit-taking and investors’ concerns that the easing measures were not sufficient to turn around struggling property sales. H-shares of most China banks remain undervalued, with 2024 price/book modestly increasing to 0.2-0.5 times. Dividend yields remain attractive at 6%-8%. With A-share counterparts trading at a 35% premium to H-shares on average, we expect the regulators’ push for higher and more regular dividend payouts, as well as the expansion of eligible exchange-traded funds on Stock Connect, should gradually narrow the valuation gap for Chinese dual-listed banks. Amid sluggish economic growth in China with no major recovery in property sales and consumer spending anticipated in 2024, we prefer defensive state-owned banks, including China Construction Bank, or CCB, and Industrial and Commercial Bank of China, or ICBC, and leading retail-focused bank China Merchants Bank for stable dividends, strong capital returns, and better earnings visibility.

Despite a slightly better-than-expected 2.3% year-on-year first-quarter net profit growth, Ping An Bank, or PAB, posted a sharp 14% decline in revenue. We retain our CNY 12 per share fair value estimate as overall results were largely in line. We expect PAB will continue to see larger-than-peer revenue pressures until 2025, as management expects PAB’s de-risking and restructuring exercises to be completed by then. While we expect net profit growth to be around 1% in 2024, we anticipate a smaller revenue contraction in the second half as the impact from a higher base in first-half 2023 normalized. We expect PAB should be able to maintain a 30% dividend payout ratio in 2024 to support its share price thanks to a solid capital ratio boosted by the new capital rules and a relatively high provision coverage ratio to smooth earnings growth. In light of uncertainties during PAB’s business transition, we prefer China Construction Bank, Industrial and Commercial Bank of China, and China Merchants Bank on higher earnings visibility and stable dividends.

Ping An Bank’s, or PAB’s, 2023 net profit growth decelerated to 2% year on year from 8% in the first three quarters. Total revenue further contracted on weaker-than-expected net interest margin, or NIM, and contracting fee income. We reduced our fair value estimate to CNY 12 from CNY 14 per share, after lowering our 2024 and 2025 NIM projections by 10 basis points and 8 basis points, respectively. Fee income growth also decreased by 10 and 4 percentage points in 2024 and 2025. The change in assumptions results in a 3- and 2-percentage-point decrease in our forecast of 2024 and 2025 net profit growths. Though revenue and net profit growth was disappointing, credit quality looks largely stable and the retail customer base keeps strengthening. Management significantly increased the dividend payout ratio from 12% to 30%, a level on par with state-owned enterprise banks. PAB's share price climbed 3.6% on the first day following its earnings announcement, as a higher dividend yield at 7% from 2.7% boosted market sentiment.

Ping An Bank, or PAB, has been transforming into a retail-focused bank. While we believe it has yet to earn a moat, we’re positive about its transformation, given its ability to leverage its parent’s huge customer base and integrated offline and online financial platform.

Ping An Bank’s, or PAB’s, year-to-September 2023 net profit growth decelerated to 8% year on year from 15% in the first half, as total revenue further contracted by 8% versus a 4% decline in the first half on weaker-than-expected net interest margin, or NIM, and lower investment income. We reduce our fair value estimate to CNY 14 from CNY 17 per share, after lowering our 2023 and 2024 NIM projections by 7 and 6 basis points, respectively, which result in 4- and 2-percentage-point declines in 2023 and 2024 net profit growths. The results reaffirm our view that retail-heavy banks are more adversely affected by slow economic activities, while PAB’s challenges are likely magnified by its ongoing aggressive de-risking campaign in its retail lending business. This is leading to a shift to low-yield and low-risk mortgage loans and title deed-secured loans. We expect PAB to continue to face greater-than-peer revenue pressures in the fourth quarter and likely in the first half of 2024, as new loan rates adjust down with the significant loan mix shift, and with greater fee income headwinds brought by the ongoing bancassurance commission rate cut.

Ping An Bank, or PAB, has been transforming into a retail-focused bank. While we believe it has yet to earn a moat, we’re positive about its transformation, given its ability to leverage its parent’s huge customer base and integrated offline and online financial platform.

We lower our fair value estimate on Ping An Bank, or PAB, to CNY 17.00 from CNY 19.00 after indications of further retail loan pricing pressure on its earnings. First-half 2023 net profit growth accelerated to 14.9% year on year from 13.6% in the first quarter on lower provision expense and operating cost savings, largely in line with our expectation. However, the lower expenses are mitigating a further 25-basis-point contraction in net interest margin, or NIM, that is worse than its peers. This indicates that PAB is more sensitive to intensifying competition in retail loan pricing especially as the consumption recovery has stalled. While we think PAB is inexpensive at the current share price level, trading at a 0.5 times 2023 price/book ratio, investors may need to have a longer holding period given our view for a weaker-than-peer second-half revenue growth outlook.

Ping An Bank, or PAB, has been transforming into a retail-focused bank. While we believe it has yet to earn a moat, we’re positive about its transformation, given its ability to leverage its parent’s huge customer base and integrated offline and online financial platform.

Ping An Bank’s first-quarter net profit growth slowed to 13.6% year on year to CNY 14,602 million, which is below our previous expectation for high-teens growth. The slower net profit growth was mainly attributable to lower-than-peer loan growth and lingering headwinds to fee income growth in first-quarter 2023. We expect these headwinds to ease and retain our fair value estimate at CNY 19 per A-share. We continue to like PAB and while we do not think it enjoys a moat, we believe its competitive strength in retail banking is intact, as evidenced by the resilient growth in both retail assets under management and wealth management services income. Fueled by the 84% increase in bancassurance sales, first-quarter wealth management-related fee income growth turned positive for the first time since 2022, up 4.8% year on year.

The large Chinese banks will release 2022 results in late March and first-quarter 2023 results in late April. Pressures on net interest margin are likely to rise in the first quarter. However, the accelerating recovery in China’s economy since reopening reaffirms our expectation for asset risks to be contained. This allows banks some flexibility in their already-high provision levels, which should enable them to smooth net profit growth despite significant revenue pressures. But we do see a wider divergence in profitability in 2023 as slowing revenue growth results in less leeway to manage earnings growth. Those banks that can benefit from a rebound in retail lending and wealth-management services, which we expect in mid-2023, should present buying opportunities along with stronger earnings performance.

No-moat Ping An Bank, or PAB, reported 2022 revenue growth of 6.2% and net profit growth of 25.3% year on year, in line with its preliminary results. The results were mixed. We are pleased to see that fourth-quarter fee income growth turned positive year on year and the number of wealth customers and asset under management, or AUM, continued a fast expansion, despite escalating economic challenges in the last quarter of 2022. However, fourth-quarter net interest margin, or NIM, reported larger-than-expected contraction by 10 basis points to 2.68% from the third quarter. We expect such downward pressure will continue into the first quarter but should gradually mitigate after the second quarter. We lower our 2023 NIM assumption by 2 basis points to 2.65%, but the negative valuation impact is offset by lower 2023 credit cost of 4 basis points, thus leaving to our fair value estimate for PAB unchanged at CNY 19 per A share.

Ping An Bank, or PAB, has been transforming into a retail-focused bank. While we believe it has yet to earn a moat, we’re positive about its transformation, given its ability to leverage its parent’s huge customer base and integrated offline and online financial platform.

In its preliminary results report, no-moat Ping An Bank, or PAB, saw better-than-expected fourth-quarter earnings growth of 23% year on year, leading to 2022 net profit of CNY 45,516 million, but with disappointing 6% top-line growth. The lower provisioning has helped offset softening revenue. This is not unique to PAB, with China Merchants Bank, or CMB, also indicating a similar trend. We believe the weak bond market and overall low consumer and investment activity, which are the key drags to 2022 revenue growth, should recover in 2023. As such, we leave our major assumptions unchanged and retain our fair value estimate for PAB at CNY 19 per A-share.

No-moat Ping An Bank, or PAB, posted strong third-quarter results, with the first nine months' net profits growing 25.8% year on year, versus 25.6% in the first half. On a positive note, both third-quarter net interest income growth and net interest margin, or NIM, beat our expectations. Third-quarter net interest income increased 10.2% against the year-ago period, outpacing the 7.9% year-on-year growth in the first half. This was primarily boosted by a six-basis-point rebound in third-quarter NIM to 2.78% from the second quarter. Another positive was lower bad debt formation rate, leading to a 1.7% year-on-year decline in third-quarter provision expenses, versus a 5% increase in the first half. Despite the strong results, we now expect a more subdued consumption recovery and a prolonged weakness in the property market to pose continuous downward pressures on NIM and wealth management-related fee income growth in 2023.

Ping An Bank, or PAB, has been transforming into a retail-focused bank. While we believe it has yet to earn a moat, we’re positive about its transformation, given its ability to leverage its parent’s huge customer base and integrated offline and online financial platform.

Ping An Bank, or PAB, has been transforming into a retail-focused bank. While we believe it has yet to earn a moat, we’re positive about its transformation, given its ability to leverage its parent’s huge customer base and integrated offline and online financial platform.

Ping An Bank, or PAB, has been transforming into a retail-focused bank. While we believe it has yet to earn a moat, we’re positive about its transformation, given its ability to leverage its parent’s huge customer base and integrated offline and online financial platform.

We reduced our fair value estimate for Ping An Bank, or PAB to CNY 22 from CNY 24 per share, corresponding to 1.1 times forward P/B, after downward revisions to our 2022 fee income forecast by 8% and net interest margin, or NIM, by about three basis points to reflect weak consumer confidence and volatile capital market movement in the near term. PAB’s first-half results were mixed. PAB’s total revenue growth was resilient despite challenging market conditions. The 8.7% year-on-year growth was largely on track to match our 10% full-year growth assumption. However, the second-quarter fee income was disappointing, contracting 19.5% year on year on volatile capital market movement and growing concerns of property market risks. The six-month net profit grew 25.6% year on year on lower credit costs and improved operating efficiency. Such growth was ahead of the 21% iFinD consensus and our projected growth at high-teens for the full year of 2022.