PSBC’s Wealth Management Business Drove Strong Growth in Fee Income During 2021

We retain our fair value estimate for no-moat Postal Savings Bank of China, or PSBC, at CNY 6.30 per A-share and HKD 7.60 per H-share after the bank posted strong results. Total revenue and net profits grew 11.4% and 18.6% respectively from 2020 and the results were in line. Total revenue growth continued to accelerate quarter on quarter driven by strong growths in fee income and investment income. The results reflected PSBC’s strong growth momentum in its microfinance and wealth management businesses, leveraging its 40,000 distribution outlets and 637 million retail customers across China. Such growth was the highest among state-owned enterprise, SOE, banks. We expect PSBC's strong growth momentum to continue during our five-year forecast period, thanks to great potential in asset mix optimization and an extensive network that benefits from the robustly growing wealth management business in less-developed markets. H-shares are trading below 0.7 times forward price/book ratio. PSBC’s annualized return on equity increased 2 basis points to 11.86% from 2020. We believe PSBC deserves a valuation premium against SOE peers, thanks to its strong growth momentum and strong returns on equity. The dividend per share increased 18.7% to CNY 2.474 per 10 shares and the dividend yield was high at 4.7%. The payout ratio was steady at 30% over the past three years; we expect this to remain above 30% in 2022.