PSBC’s FY19 net profit rose 16.5% YoY to RMB 60.9bn, 1.3%/1.8% above CMBIS/consensus estimates. As a result, ROE picked up 0.3ppt YoY to 12.7%. Management targets to maintain stable dividend payout of 30%. PSBC is our preferred defensive play against potential macro downturn, given its: 1) low-risk credit profile, 2) above-peers provision buffer, 3) solid funding base, and 4) management’s incentive to reduce share price volatility after A-share listing.
- Results positives: 1) Healthy loan growth of 2.6% QoQ/16.3% YoY, mainly driven by 18.6% YoY increase in retail loans, reaching 55.3% of total loan book. Among which, credit card overdraft saw fastest growth of 24.0% YoY, but still merely accounted for 2.5% of loan mix as of FY19, vs sector average of 6.4%; 2) Continued expansion in retail client base and AUM, which were up 4.6% YoY to 605mn and 8.7% YoY to RMB10tn. In particular, wealth clients (with AUM > RMB50,000) rose 20.7% YoY to 2.47mn (0.41% of total retail clients). 3) 4Q19 net fee income growth stayed robust at 16.4% YoY, largely on rising fees from bank card and settlement & clearing businesses. Revenue structure improved with 2.9ppt lift in non-interest income proportion (13.2%); 4) Capital position strengthened. CET1/total CAR edged up 35bp/25bp QoQ to 9.90%/13.52% after A-share IPO in Dec 2019. The bank issued RMB80bn perpetual bonds in Mar 2020, which could further boost tier-1 CAR by 160bp.
- Results negatives: 1) 4Q19 NIM narrowed 2bp QoQ to 2.44% by our estimate, and full-year NIM fell 17bp YoY to 2.50%. This was mainly due to higher liability cost amid intensified deposit competition. We expect the Bank’s funding cost pressure to ease in FY20, given regulatory tightening on structured deposit and potential benchmark deposit rate cut; 2) NPL ratio climbed 3bp QoQ to 0.86%, still well below sector average of 1.86%. Provision coverage slid 1.7ppt to 389%, only lower than CMB’s (3968 HK, NR) 427% among nationwide banks. 3) 4Q19 CIR rose 4.2ppt YoY to 69.5%, likely due to increase in IT-related personnel. Full-year staff cost was up 11.4% YoY.
- Maintain BUY. PSBC’s 16.5% YoY FY19 net profit growth is likely to top major listed peers. It is expected to be the only SOE bank to achieve double-digit earnings growth and improving ROE in FY20-22E. Our HK$6.70 TP is based on GGM-derived target P/B of 0.95x and FY20E BPS of RMB6.31.
