Postal Savings Bank of China’s (PSBC) attributable net profit grew 14.5% YoY in 9M22, higher than our expectation. Its attributable net profit increased 13.8% YoY in 3Q22, against YoY growths of 11.8% in 2Q22 and 17.8% in 1Q22. Its operating income increased 7.8% YoY in 9M22, lower than YoY growths of 10.0% in 1H22 and 10.2% in 1Q22, mainly due to negative growth in net interest income and slow growth in net fee and commission income in 3Q22. PSBC maintained outstanding asset quality in 9M22 as its NPL ratio was unchanged in 3Q22 and might still be at the lowest level among peers. Its allowance to NPL might be at the high end. As of end September 2022, its loan- to-deposit ratio increased 1.4ppts YTD to 56.4%, which might still be at the lower end of banking sector. In our view, the new deposit agency fees agreement will improve its earnings and strengthen its strategic positioning as a large retail bank. PSBC plans to issue a non-public issuance of A-shares and raised no more than RMB45bn, which should help support higher loan growth and improve CAR ratios in the future.
Maintain BUY rating.
Key Factors for Rating
Outstanding asset quality maintained in 3Q22. Its NPL ratio reached 0.83% at end September 2022, unchanged from end June 2022. Its NPL ratio is likely to remain at the lowest level among peers in 9M22. Its allowance to NPLs reached 404.5% at end September 2022, lower than 409% at end June 2022.
NIM declined in 3Q22. Net interest income decreased 0.7% YoY in 3Q22, against YoY growths of 3.5% in 2Q22 and 4.1% in 1Q22, mainly due to decline in the net interest margin (NIM). Its NIM reached 2.23% at end September 2022, down 4bps from 2Q22 and 13bps from 2021.
Valuation
Its H shares are now trading at 0.47x 2022E P/B, which is undervalued. We believe the bank should be trading at a higher PB valuation, thanks to its outstanding asset quality, strong growth in net fee income, higher earnings growth and decent ROAE. We expect its ROAE to reach 11.9% in 2022. However, one of its strategic investors has recently reduced stakes at PSBC, which might negatively affect investors' risk appetites and market sentiment. Furthermore, PSBC will strengthen its financial support to the real economy in the future. We trimmed our target price from HK8.18 to HK$7.58, based on based on 0.9x 2022E P/B.