PAB reported 9M19 earnings of RMB 23.6bn, up 15.5% YoY and accounting for 82.8%/84.0% of CMBIS/consensus full-year estimates. 3Q19 net profit picked up 16.0% YoY, accelerating from 15.2% YoY in 1H19. Revenue growth stayed robust at 19.4% YoY, driven by strong net interest income (+32.4% YoY) and net fee income (+63.7% YoY), while offset by lower investment gain due to high-base effect. The Bank boosted impairment charges (+21.8% YoY) for more stringent NPL recognition. As such, 9M19 annualized ROE edged up 4bps YoY to 12.64% despite a dilution impact from CB conversion.
- Results positives: 1) Loan growth was healthy at 3.3% QoQ, on the back of faster expansion of retail loans (+4.0% QoQ) vs corporate loans (+2.4% QoQ). The proportion of retail loans reached 59.2% as of 3Q19. Meanwhile, number of retail and private banking client grew steadily by 3.8% QoQ and 6.5% QoQ, respectively; 2) Net fee income surged 63.7% YoY, likely on strong fees from settlement and agency service businesses; 3) Asset quality remained stable. NPL ratio was flat at 1.68%, while above 90day overdue loan ratio fell 12bps QoQ to 1.46%, implying stricter NPL recognition. Credit cost rebounded to 3.2%, and provision coverage climbed 3.7ppts to 186.2%; 4) Capital position was strengthened post CB conversion. CET 1 and total CAR rose 87bps/74bps QoQ to 9.75%/ 13.36%. The Bank has proposed to issue RMB 50bn perpetual bonds, which could further boost Tier 1 CAR by 196bps.
- Results negatives: 1) NIM narrowed 9bps QoQ to 2.62%, as loan yields retreated 19bps QoQ on possibly more prudent credit allocation, while funding cost was largely stable. 2) Deposit balance shrank 2.3% QoQ, after a decent 10.2% HoH growth in 1H19. CBIRC’s tightened regulation on structured deposits may restrain PAB’s deposit growth, as its proportion of structured deposit was 18.5% as of 2Q19.
- Maintain BUY and raise TP to RMB 21.2. We see muted share price reaction after the mixed 3Q19 results. However, we remain upbeat on PAB’s long-term outlook given the Bank’s in-depth retail transformation and market-oriented business strategy. We lifted our FY19-21 earnings forecast by 3-10% and rolled forward the valuation basis to FY20. Our new RMB 21.2 TP is derived from 1.35x target P/B and FY20E BVPS of RMB 15.7.
