CMB International Securities | Equity Research | Company Update Summary
Core Content
This report provides an update on Ping An Bank (000001 CH) for the third quarter of 2020 (3Q20), highlighting its financial performance and future outlook. The analysis includes key results, financial metrics, and ratings from CMB International Securities (CMBIS), along with disclosures and disclaimers.
Main Points
Financial Performance Highlights
- Earnings Recovery: After a sharp decline in 2Q20, PAB's earnings turned positive in 3Q20, growing by +6.1% YoY.
- YTD Profit Contraction Narrowed: The year-to-date profit contraction was reduced to -5.2% YoY from -11.2% YoY in 1H20.
- Retail Loan Growth: Loan growth was solid at +3.1% QoQ, driven by +5.7% QoQ in retail loans. Notably, new mortgage and auto loans saw strong growth (+7.5% and +10.4% QoQ respectively), while credit card loans resumed expansion (+3.0% QoQ).
- Asset Quality Improvement: PAB accelerated NPL disposal, leading to a 33bp QoQ drop in NPL ratio to 1.32%, and a +3.4ppt increase in provision coverage to 218%.
- Fee Income Growth: Net fee income rose 32.6% YoY, attributed to strong bank card and agency services fees.
- Operating Efficiency: The cost-income ratio fell to 29% YoY, indicating improved operating efficiency.
- Client Base Expansion: Retail, wealth, and private banking clients increased by 1.9% / 4.5% / 8.2% QoQ, with retail AUM rising 7.2% QoQ to RMB2.49tn.
Financial Performance Negatives
- NIM Decline: Net interest margin (NIM) dropped 11bp QoQ to 2.48%, primarily due to lower loan yields and rising interbank rates.
- Trading and Investment Losses: Trading and investment gains fell 72% YoY, likely due to bond yield hikes.
- LDR Increase: Loan-to-deposit ratio (LDR) rose to 100.5%, reflecting slower deposit growth than loan growth (+2.5% QoQ).
- Capital Position Weakening: Tier1 and total CAR declined by 5bp and 10bp QoQ, respectively.
Key Financial Metrics
| Metric |
FY18A |
FY19A |
FY20E |
FY21E |
FY22E |
| Operating Income (RMB mn) |
116,716 |
137,958 |
154,235 |
169,487 |
187,247 |
| Net Profit (RMB mn) |
24,818 |
28,195 |
25,859 |
29,532 |
34,443 |
| EPS (RMB) |
1.39 |
1.54 |
1.29 |
1.48 |
1.73 |
| P/E (x) |
12.8 |
11.6 |
13.9 |
12.1 |
10.4 |
| P/B (x) |
1.40 |
1.27 |
1.18 |
1.09 |
0.99 |
| NPL Ratio (%) |
1.75 |
1.65 |
1.36 |
1.32 |
1.29 |
| Provision Coverage (%) |
155 |
183 |
231 |
268 |
303 |
| CET1 CAR (%) |
8.5 |
9.1 |
9.9 |
9.8 |
9.6 |
| Tier1 CAR (%) |
9.4 |
10.5 |
10.6 |
10.4 |
10.2 |
| Total CAR (%) |
11.5 |
13.2 |
12.4 |
12.0 |
11.6 |
| ROE (%) |
11.3 |
11.1 |
8.8 |
9.3 |
10.0 |
| ROA (%) |
0.74 |
0.77 |
0.63 |
0.65 |
0.69 |
Outlook and Ratings
- Rating: BUY
- Target Price: RMB 22.80
- Current Price: RMB 17.91
- Upside Potential: +27.3%
- Earnings Forecast: Unchanged
- Target Price Derivation: Based on 1.5x target P/B and FY20E BVPS of RMB15.2
Analyst Information
Shareholding Structure
| Holder |
Percentage |
| Ping An Group |
57.9% |
| China Securities Finance |
2.2% |
| Huijin |
1.1% |
Stock Data
| Metric |
Value |
| Market Cap (RMB mn) |
347,560 |
| Avg 3 mths t/o (RMB mn) |
1,917 |
| 52w High/Low (RMB) |
18.1 / 11.91 |
| Total Issued Shares (mn) |
19,406 |
Key Ratios
| Ratio |
FY18A |
FY19A |
FY20E |
FY21E |
FY22E |
| Net Interest Income |
64% |
65% |
66% |
66% |
65% |
| Net Fee Income |
27% |
27% |
26% |
27% |
29% |
| Operating Income |
10.3% |
18.2% |
11.8% |
9.9% |
10.5% |
| Cost-to-Income Ratio |
30.3% |
29.6% |
31.2% |
31.2% |
31.2% |
| NPL Ratio |
1.75% |
1.65% |
1.36% |
1.32% |
1.29% |
| Provision Coverage |
155% |
183% |
231% |
268% |
303% |
| CET1 CAR |
8.5% |
9.1% |
9.9% |
9.8% |
9.6% |
| Tier1 CAR |
9.4% |
10.5% |
10.6% |
10.4% |
10.2% |
| Total CAR |
11.5% |
13.2% |
12.4% |
12.0% |
11.6% |
| ROE |
11.3% |
11.1% |
8.8% |
9.3% |
10.0% |
| NIM |
2.35% |
2.62% |
2.56% |
2.53% |
2.53% |
CMBIS Ratings
- BUY: Stock with potential return of over 15% over next 12 months.
- HOLD: Stock with potential return of +15% to -10% over next 12 months.
- SELL: Stock with potential loss of over 10% over next 12 months.
- OUTPERFORM: Industry expected to outperform the relevant broad market benchmark over next 12 months.
- MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark over next 12 months.
- UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark over next 12 months.
Disclosures & Disclaimers
- The report is not individually tailored and should not be construed as an offer or solicitation to buy or sell any security.
- CMBIS does not guarantee the accuracy, completeness, or timeliness of the information.
- Past performance does not indicate future results.
- Investors should consult professional financial advisors before making investment decisions.
- The report is for intended recipients only and may not be reproduced or distributed without prior written consent.
Summary of Key Takeaways
- Positive Trends: PAB's earnings recovery, strong retail loan growth, improved asset quality, and rising fee income are positive indicators.
- Challenges: Declining NIM, reduced trading and investment gains, and weakening capital position remain key concerns.
- Outlook: CMBIS remains upbeat on PAB's 4Q20 outlook, citing strong macro trends and improving credit cost management.
- Investment Recommendation: BUY rating with a target price of RMB22.80.
