Ping An Bank: Premium Rating Not Justified by Trends

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/ping-an-bank-co-ltd-a" target="_blank" data-smartkarma-citation="entities:681:1" rel="noopener">Ping An Bank Co Ltd A (000001 CH)</a> is a serial high PH Scorer™. Latest data show the bank commanding a PH Score™ of 7.75. There were positive trends in Margin, in Efficiency, in Capitalisation, in headline Asset Quality, and in Provisioning while Profitability was stable and Liquidity very slightly eroded.</p><div class="content-highlight"><p>The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score.</p></div><p>We conclude that the fundamental dynamics of the numbers are favourable. Last year, we were rather puzzled by the quarterly volatility of the P&amp;L which instilled us with caution despite a high PH Score™. We had the impression that the lender was moving up the risk curve or down the credit curve with a dramatic drop in Interest Expenses and fatter lower grade consumer credit margins between Q2 and Q319. Shares moved lower after this observation but seem to have stabilized of late. We note today that credit growth remains ebullient which may not be so appropriate in the current environment, related to aforementioned risk, though well funded, while "doubtful loans" are still rising fast - but not by as much as they were.  But overall today, Asset Quality seems under better control: recoveries are strong, and aforementioned "impaired loans" are decreasing fast, especially net of reserves. (We were concerned at FY18 about the level of impaired loans at some US$8.5bn, well in excess of NPLs of US$5.1bn). </p><p>RSI is hardly gung-ho though very recent trading hints that the market appreciated the latest release. Together with a high PH Score™, this can be tailwind. Valuation is not especially enticing by FV or Earnings Yield while Dividend Yield is relatively paltry. We note that a P/Book of 1.1x is not particularly elevated. For a value hunter, you'd want to own these shares below BV.</p>

Ping An Bank Co Ltd A (000001 CH) is a serial high PH Scorer™. Latest data show the bank commanding a PH Score™ of 7.75. There were positive trends in Margin, in Efficiency, in Capitalisation, in headline Asset Quality, and in Provisioning while Profitability was stable and Liquidity very slightly eroded.The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score.We conclude that the fundamental dynamics of the numbers are favourable. Last year, we were rather puzzled by the quarterly volatility of the P&amp;L which instilled us with caution despite a high PH Score™. We had the impression that the lender was moving up the risk curve or down the credit curve with a dramatic drop in Interest Expenses and fatter lower grade consumer credit margins between Q2 and Q319. Shares moved lower after this observation but seem to have stabilized of late. We note today that credit growth remains ebullient which may not be so appropriate in the current environment, related to aforementioned risk, though well funded, while "doubtful loans" are still rising fast - but not by as much as they were.  But overall today, Asset Quality seems under better control: recoveries are strong, and aforementioned "impaired loans" are decreasing fast, especially net of reserves. (We were concerned at FY18 about the level of impaired loans at some US$8.5bn, well in excess of NPLs of US$5.1bn). RSI is hardly gung-ho though very recent trading hints that the market appreciated the latest release. Together with a high PH Score™, this can be tailwind. Valuation is not especially enticing by FV or Earnings Yield while Dividend Yield is relatively paltry. We note that a P/Book of 1.1x is not particularly elevated. For a value hunter, you'd want to own these shares below BV.

Ping An Bank Co Ltd A

Ping An Bank: A Serial High PH Scorer™