Ping An Bank Earnings: Net Profit Growth Eases, but Headwinds Should Diminish

Ping An Bank’s 000001 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.

PAB’s loan book expanded 9.3% year on year, lagging the 12% system loan growth due to the scarcity of quality credit assets. Fee income growth declined 0.1% year on year. We suspect this was driven by the 22% year-on-year decline in credit card consumption, and continued regulatory service rate cut to support the economy.

First-quarter net interest margin declined 17 basis points year on year to 2.63%, but the quarter-on-quarter contraction narrowed to 5 basis points from 10 basis points in the fourth quarter of 2022. Positively, average loan pricing remained steady quarter over quarter, despite significant downward pressure from loan repricing. The average corporate loan rate increased 12 basis points from fourth-quarter 2022 on improving business sentiment. However, the average retail loan rate declined 5 basis points, as the retail loan book continued to tilt toward low-risk collateralized loans. The bank extended only 10% of first-quarter new credits to retail loans. We expect NIM to gradually stabilize, as the bank increased credit extension to retail loans along with the expected recovery in credit card consumption in coming quarters.