Ping An Bank: Solid Credit Quality Despite Increasing Top-Line Growth Challenges

We lower our fair value estimate on Ping An Bank, or PAB, to CNY 17.00 from CNY 19.00 after indications of further retail loan pricing pressure on its earnings. First-half 2023 net profit growth accelerated to 14.9% year on year from 13.6% in the first quarter on lower provision expense and operating cost savings, largely in line with our expectation. However, the lower expenses are mitigating a further 25-basis-point contraction in net interest margin, or NIM, that is worse than its peers. This indicates that PAB is more sensitive to intensifying competition in retail loan pricing especially as the consumption recovery has stalled. While we think PAB is inexpensive at the current share price level, trading at a 0.5 times 2023 price/book ratio, investors may need to have a longer holding period given our view for a weaker-than-peer second-half revenue growth outlook.