Date: 1 October 2024
Broker: OCBC Investment Research (OIR)
Company Overview
Ping An Insurance, China’s second-largest life and property & casualty (P&C) insurer, operates through an integrated financial services platform. The company focuses on life/health insurance and internet finance, aiming to meet the rising protection and wealth management needs of China’s middle class. With a strong agency model and proprietary technology, Ping An continues to improve its customer experience and cross-sales capabilities.
The majority of Ping An’s revenue comes from life insurance, property and casualty insurance, and banking segments. It also provides services like stock trading, equity investment funds, property leasing, and asset management through subsidiaries such as Ping An Trust and Ping An Bank. The bank has been transitioning towards a retail banking model, focusing on increasing customer stickiness through cross-selling to the insurance arm’s existing customers.
Recent Developments and Market Position
Recent policy easing measures by the Chinese government, aimed at supporting the economy and equity markets, are expected to benefit insurance companies, including Ping An. The People’s Bank of China (PBoC) has rolled out a CNY500 billion swap facility, and regulatory bodies are encouraging long-term investments in equity markets through insurance funds and exchange-traded funds (ETFs).
Ping An’s life and P&C businesses posted strong accumulated gross premium income growth for the first eight months of 2024, increasing by 9.1% and 5.3%, respectively. These results outperformed the 5.1% and 4.1% growth recorded for the first half of 2024.
Financial Summary
- FY23 Total Revenue: CNY 1,032 billion
- FY24E Total Revenue: CNY 1,073 billion
- FY25E Total Revenue: CNY 1,108 billion
- FY23 PATMI: CNY 85.7 billion
- FY24E PATMI: CNY 111.2 billion
- FY25E PATMI: CNY 121.5 billion
Key financial indicators show that Ping An’s underlying operating trends are expected to remain strong in the near term, with notable growth in new business value (NBV) in the life insurance segment. The company’s NBV for 1H24 rose by 11% YoY, reaching CNY 22.3 billion, driven by productivity gains and an NBV margin expansion of 6.5 percentage points to 24.2%.
Investment Thesis
Ping An’s diversified business model and technological advancements provide a competitive edge in delivering organic growth across multiple segments. Its ability to integrate life reforms, improve agent productivity, and optimize product offerings positions the company for long-term success. The company has maintained consistent dividend payouts, with a payout ratio of 28-37% of operating profit after tax (OPAT) between FY17 and FY23, resulting in a dividend per share (DPS) growth of 8.4% compound annual growth rate (CAGR).
Recent Policy Impacts
The Chinese government’s economic measures, such as lower guaranteed rates for traditional insurance products and deposit rate cuts by banks, are expected to support demand for Ping An’s insurance products. Moreover, policy measures aimed at boosting liquidity in the stock market are expected to provide tailwinds to Ping An’s investment income. As of 30 June 2024, 16% of Ping An’s insurance funds were allocated to equity financial assets, and positive developments in the real estate sector could further bolster market sentiment toward the company.
Risk Factors
Ping An faces several risks, including regulatory and policy changes, credit risks, and asset quality pressures. Lower bond yields, weaker-than-expected capital market performance, and higher-than-expected claims could negatively impact the company’s financial position. Additionally, increased provisions from its banking and lending businesses, as well as softer credit quality, could weigh on group earnings.
ESG Efforts
In November 2022, Ping An’s Environmental, Social, and Governance (ESG) rating was upgraded, recognizing its green finance initiatives and regular assessments of environmental and social risks in its lending portfolio. However, the company lags behind its global peers in areas such as corporate governance enforcement and IT audit processes, although improvements have been made in data security with ISO 27001 certification.
Financial Ratios (FY24E)
- P/E: 9.3x
- P/B: 1.1x
- Dividend Yield: 4.3%
- ROE: 11.9%
Conclusion
Ping An is positioned to benefit from favorable policy measures and strong premium income growth. Its strategic focus on technological integration, agent productivity, and disciplined cost management should support its earnings growth in the medium term, with ongoing dividends enhancing shareholder value. However, the company remains exposed to macroeconomic and sector-specific risks, requiring close monitoring of bond yields, investment performance, and regulatory developments.
