Shareholders’ profit up 17.8% yoy in 1Q22
Overall asset quality maintained despite some increased pressure
Maintain BUY and TP of HKD8.2
　　Good profitability maintained in 1Q22
　　1) The Company posted steady profitability in 1Q22. Shareholders’ net profit rose by 17.81% yoy in 1Q22, partly due to fast growth in net fee and commission income, smaller cost to income ratio, and smaller credit impairment losses. 2) NIM was 2.32% in 1Q22, compared with 2.36% in 2021 (or 2.40% in 1Q21), in line with management’s earlier view that NIM faced some downward pressure. The loan-to-deposit ratio has slightly helped to maintain reasonable NIM, rising to 57.12% at end-1Q22 from 56.84% at end-2021. 3) Asset quality was sound. As of end-1Q22, the NPL formation ratio remained low at 0.15%, the NPL ratio was 0.82% equal to that at end-2021, and the allowance to NPL ratio remained at around ~414% (Fig. 1). There was some increased pressure, however, as balance of NPL and special mention loan increased by 5.9%/6.4% qoq in 1Q22. The management discussed asset quality trend in 2022.Due the complexity of economic environment and the recent outbreak of COVID-19, the repayment ability of some micro and small enterprises and individuals was under pressure, posing challenges to the asset quality control. The management stressed that PSBC’s risk exposure to real-estate related corporate loans (Fig. 3) is limited. The NPL formation ratio of PSBC might increase in 2022, but management is still confident in keeping overall asset quality stable. 4) PSBC shouldered some policy responsibilities to serve real economy. The balance of its agriculture- related loans/inclusive SME loans increased by over ~4%/~4% qoq in 1Q22. 5) The fee and commission income grew fast by 39.6% yoy in 1Q22. PSBC’s targeted growth rate of such income is more than 20% yoy for 2022. 6) The Company’s overall business performance in 1Q22 was positive, highlighted by good profitability.
　　Maintain BUY and TP of HKD8.2
　　PSBC is trading at ~5.71x 22E P/E and ~0.66x 22E P/B. Maintain BUY for PSBC on its good profit growth, retail-focused business structure, and sound asset quality. PSBC has room to maintain reasonable NIM because it might benefit from its rising loan-to-deposit ratio. Maintain BUY and TP of HKD8.20, equal to ~0.90x 22E P/B, or a 25% premium to its past 5-yr average P/B. PSBC remains our top pick of the sector. Key catalysts: better-than-expected asset quality, NIM expansion; key downside risks: worse-than-expected asset quality, NIM pressure.