Postal Savings Bank of China: Fee Income Growth Leads Peers; H Shares Still Attractive

No-moat-rated Postal Savings Bank of China’s 01658 first-quarter results surprised with a 27.5% year-on-year increase in fee income, slightly exceeding our expectations. Net interest income was resilient, growing 1% year on year, indicating a decent improvement from the 0.5% decline in fourth-quarter 2022, despite significant pressures brought by loan repricing. Overall, we think the results are largely in line with our expectations and reaffirm our thesis that PSBC should benefit from the strong growth potential given the underserved financing demands in rural areas despite the challenging market environment. Our fair value estimates of CNY 5.70 for A shares and HKD 6.50 for H shares are unchanged, and we think the H shares remain undervalued, trading at 0.6 times 2023 price to book value.

PSBC’s strong fee income growth well exceeded the 0.1% and 13% year-on-year decline in net fee income for its retail-focused peers Ping An Bank and China Merchants Bank, thanks to the nascence of the wealth management business in the rural market. The bank noted the growth was led by a 46% increase in agency business fees on improved insurance and fund income as PSBC continued to optimize the structure of their customer wealth pool. The corporate banking segment also saw significant improvement in the transaction banking and syndicated loans business. We continue to expect double-digit growth in PSBC’s fee income as we believe the early signs of recovery in investors’ sentiment and household confidence should support PSBC’s wealth management and card fees.