PAB Earnings: Revenue Contracted on Derisking, Higher-Than-Peer Revenue Pressure

Ping An Bank’s, or PAB’s, 2023 net profit growth decelerated to 2% year on year from 8% in the first three quarters. Total revenue further contracted on weaker-than-expected net interest margin, or NIM, and contracting fee income. We reduced our fair value estimate to CNY 12 from CNY 14 per share, after lowering our 2024 and 2025 NIM projections by 10 basis points and 8 basis points, respectively. Fee income growth also decreased by 10 and 4 percentage points in 2024 and 2025. The change in assumptions results in a 3- and 2-percentage-point decrease in our forecast of 2024 and 2025 net profit growths. Though revenue and net profit growth was disappointing, credit quality looks largely stable and the retail customer base keeps strengthening. Management significantly increased the dividend payout ratio from 12% to 30%, a level on par with state-owned enterprise banks. PAB's share price climbed 3.6% on the first day following its earnings announcement, as a higher dividend yield at 7% from 2.7% boosted market sentiment.