Postal Savings Bank of China’s Q3 Reported Significant Decline in NIM, Fee Income Growth Slowed

We reduce our fair value estimate for no-moat Postal Savings Bank of China, or PSBC, to CNY 6 from CNY 6.30 per A-share and HKD 6.50 from HKD 7.60 per H-share after its third-quarter results. The new valuation reflects our less optimistic outlooks for net interest margin, or NIM, in coming quarters and downward pressures on fee income amid heightened capital market volatility and subdued investor sentiment. The larger decline in the H-share valuation was also attributable to recent RMB depreciation, and we are using an exchange rate of 1.08 CNY/HKD. We reduce our NIM projection for 2022 and 2023 by 4 and 2 basis points, respectively, and lowered 2022 fee income growth by 10%. The bank is undervalued, trading at below 0.5 times 2022 price to book ratio. We believe PSBC's strong growth momentum and low-risk assets justify valuation premium against SOE peers.