PAB reported decent 1Q20 PPoP/net profit growth of 19.4%/14.8% YoY. Healthy credit expansion, stable NPL ratio, and better operating efficiency were key positives. 1Q20 NIM narrowed 2bp QoQ, but should outperform peers on resilient loan pricing and higher proportion of market-based funding. Down 21% YTD (vs -11.6%/-5.9% for A-share banks/CSI 300 Index), the Bank appeared to be over-penalized for above-peers exposure to consumption related loans. Despite temporary fluctuation in retail NPLs, PAB is likely among the first to walk out of this credit down-cycle as we expect corporate loan quality to be well managed.
- Results positives: 1) Loan growth was robust at 5.2% QoQ vs 4.6% QoQ for system loans. Corporate loan growth accelerated to 11.4% QoQ on policy stimulus, while retail loans were muted (+0.8% QoQ) on subdued consumption activities amid COVID-19’s outbreak. 2) Investment gain picked up 47.9% YoY, as PAB increased bond portfolio during monetary loosening. 3) 1Q20 cost-income ratio fell 1.6ppt YoY to 29.0%, indicating better operating efficiency. 4) Asset quality continued to improve. NPL ratio was stable at 1.65%, and provision coverage climbed 17.2ppt QoQ to 200.3%. Loss recognition was stricter, as NPLs covered 109.3%/128.7% (+5.3ppt/6.9ppt) of >60/90day overdue loans. 5) Expanding retail client base with faster growth in HNW. No. of retail client rose 1.6% QoQ to 98.6mn, and wealth/private banking clients saw faster growth of 5.2%/7.7% QoQ, suggesting improving service capability and stronger customer stickiness. 6) Capital position was strengthened. CET1/total CAR edged up 9bp/105bp QoQ to 9.20%/14.27%, as the Bank issued RMB30bn perpetual bond in Feb.
- Results negatives: 1) 1Q20 NIM narrowed 2bp QoQ to 2.60%. Asset yield retreated 3bp QoQ, mainly on lower rates of return from debt investments and interbank assets. Liability cost slid 1bp QoQ, driven by falling interbank funding cost, despite higher deposit rates. 2) Net fee income growth slowed to 1.7% YoY, likely due to weakening bank card and agency service fees amid the pandemic. 3) Retail NPL ratio surged 33bp QoQ to 1.52%, with NPL ratio of credit card and auto finance up the most by 66bp and 33bp QoQ, respectively. That said, corporate NPL ratio fell 48bp QoQ to 1.81%.
- Maintain BUY and RMB19.80 TP. We keep our FY20-22E earnings forecasts and TP unchanged and await further details from PAB’s results briefing at 9:30am on 21 Apr 2020.
