Postal Savings Bank of China (SEHK:1658) Margin Improvement Reinforces Defensive Narrative Despite Dividend Questions

Postal Savings Bank of China (SEHK:1658) delivered 13.7% earnings growth this year, outpacing its longer-term profit growth of 5.1% per year over the past five years. Net profit margins climbed from 23.8% to 26.9% and shares now trade at HK$5.48, still significantly below the discounted cash flow fair value estimate of HK$9.87. Investors have seen a string of high-quality results, with ongoing revenue and profit growth driving improved profitability, even as earnings forecasts remain a touch below the wider market and some caution remains around dividend sustainability.

See our full analysis for Postal Savings Bank of China.

Next, we put these headline numbers up against the market’s leading narratives to see where the story holds up and where some views might get contested.

Curious how numbers become stories that shape markets? Explore Community Narratives

Margins Improve as Net Profits Rise

• Net profit margins rose to 26.9%, up from 23.8% the prior year. This highlights a meaningful uptick in profitability even as sector-wide headwinds persist.
• What is surprising is that, despite only moderate earnings growth forecast at 3.4% annually compared to the market’s 12.4%, the bank’s profitability expansion aligns with the prevailing narrative that Postal Savings Bank remains a defensive play due to its government backing and lower property exposure.
  • This margin resilience strongly supports the argument that PSBC stands out among peers facing tighter sector profitability.
  • However, the pace of projected earnings growth lags the broader market, which is an important factor for investors comparing sector opportunities.

Valuation Discount Versus Peers and DCF Fair Value

• The share price of HK$5.48 remains significantly below DCF fair value of HK$9.87. The price-to-earnings ratio at 7x is above industry averages (industry: 5.9x, peers: 6.9x), creating a complex valuation picture.
• The numbers highlight a prevailing tension: PSBC appears attractively discounted on a DCF basis, but its premium compared to industry P/E ratios challenges the usual “cheap bank” narrative.
  • This valuation split suggests that investors considering the bank’s defensiveness are willing to pay a higher price, even as headline profit growth cools compared to sector averages.
  • There is clear evidence that improved margins and results may justify a premium, but the stock’s price still trades well below calculated fair value.

Dividend Safety Questioned Despite Solid Profits

• Although profit levels and margins are strong, there is a clear flag that the dividend may not be fully sustainable (IsDividendSustainable – false). This sets it apart from the stable dividend reputation often attached to large state-owned banks.
• Investors expecting highly secure dividends may need to reassess; the current dividend raises questions when set against robust profits and improved margins.
  • It is notable that the risk flag on dividend sustainability creates a disconnect with the prevailing view of state backing automatically ensuring safe yields.
  • This tension is worth monitoring closely, particularly as market sentiment has often relied on the assumption of PSBC’s reliable payouts.

Have a read of the narrative in full and understand what's behind the forecasts.

Next Steps

Don't just look at this quarter; the real story is in the long-term trend. We've done an in-depth analysis on Postal Savings Bank of China's growth and its valuation to see if today's price is a bargain. Add the company to your watchlist or portfolio now so you don't miss the next big move.

See What Else Is Out There

Even with robust profits and margin expansion, Postal Savings Bank faces questions about the sustainability of its dividend. This sets it apart from peers with secure payouts.

If you want to focus on companies consistently delivering reliable dividends and fewer payout risks, check out these 2008 dividend stocks with yields > 3% for stronger income options.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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