Date: 1 October 2024
Broker: OCBC Investment Research (OIR)
Company Overview
Ping An Insurance is a leading China-based personal financial services group that offers a comprehensive range of products and services, primarily in insurance, banking, and investment. The company’s two main insurance subsidiaries, Ping An Life and Ping An Property & Casualty (P&C), are ranked second-largest in China by premium income. It also provides services such as stock trading, equity investment funds, bonds, property leasing, and asset management through Ping An Trust, as well as retail banking services through Ping An Bank.
Key Financials
- Market Capitalization: CNY 951.4 billion
- Last Close Price: CNY 57.09
- Fair Value Estimate: CNY 59.75
- Shares Outstanding: 18,108 million
- Dividend Policy: The dividend payout ratio has ranged between 28% and 37% of OPAT (Operating Profit After Tax) from FY17 to FY23, with dividends per share (DPS) growing at a compound annual growth rate (CAGR) of 8.4%.
Financial Summary
- FY23 Total Revenue: CNY 1,032 billion
- FY24E Total Revenue: CNY 1,073 billion
- FY25E Total Revenue: CNY 1,108 billion
- FY23 Profit Before Tax: CNY 120.1 billion
- FY24E Profit Before Tax: CNY 155.7 billion
- FY25E Profit Before Tax: CNY 170.1 billion
- FY23 Dividend Per Share (DPS): CNY 2.4
- FY24E Dividend Per Share (DPS): CNY 2.5
- FY25E Dividend Per Share (DPS): CNY 2.7
- FY23 Return on Equity (ROE): 9.7%
- FY24E ROE: 11.9%
- FY25E ROE: 12.1%
Growth Drivers and Recent Developments
Supportive Policy Measures
Recent policy measures introduced by the Chinese government are expected to benefit Ping An Insurance. These measures include a CNY 500 billion swap facility by the People’s Bank of China (PBoC) to enhance leverage for equity investments by brokers, funds, and insurance companies. Additionally, the China Securities Regulatory Commission (CSRC) and National Financial Regulatory Administration (NFRA) aim to facilitate long-term investments through stock index exchange-traded funds (ETFs) and insurance funds.
These policy changes have already contributed to improved investor sentiment and increased market liquidity, which, in turn, could boost Ping An’s investment income. As of June 30, 2024, approximately 16% of Ping An’s insurance funds were allocated to equity financial assets, while real estate accounted for 4% of its investment portfolio.
Premium Income Growth
For the first eight months of 2024, Ping An reported accumulated gross premium income growth of 9.1% for its life insurance business and 5.3% for its P&C segment. This represents an acceleration from the 5.1% and 4.1% growth reported in 1H24, respectively. Despite lowering guaranteed rates on traditional insurance savings products, demand remained strong due to lower bank deposit rates.
Technological Advancements
Ping An continues to leverage proprietary technology to improve customer experience and cross-sell its services. The company has established itself as a leader in internet finance and integrated financial services, enabling it to tap into China’s rising middle class, which is increasingly seeking wealth management and insurance solutions.
ESG and Corporate Governance
Ping An’s ESG rating was upgraded in November 2022, reflecting the company’s strong commitment to green finance, particularly in the regular assessment of environmental and social risks in its commercial lending portfolio. However, its corporate governance practices are considered average compared to global peers. Areas of improvement include external IT audits and enforcement measures, despite the company’s ISO 27001 certification for data security.
Risks and Investment Considerations
Regulatory and Policy Risks
Ping An faces potential challenges from regulatory and policy shifts. Any further drops in bond yields and weaker capital markets could result in unrealized losses in its investment portfolio. In addition, a slowdown in auto sales could negatively impact its auto insurance premiums.
Asset Quality Concerns
The company also faces rising credit risks and asset quality pressures, particularly within its investment portfolio and banking/lending businesses. A worsening economic environment could lead to increased provisions, further dragging on group earnings.
Valuation and Investment Thesis
Ping An Insurance is currently rated as a HOLD with a fair value estimate of CNY 59.75. The stock is well-positioned to benefit from China’s policy easing measures, which are expected to provide tailwinds for its insurance and investment businesses. Its diversified business model, strong agency focus, and technological capabilities support its ability to generate growth, particularly in the life and health insurance sectors.
The company is seen as a beneficiary of improving investor sentiment and better market liquidity, driven by policy support for long-term investments in the equity markets. However, risks associated with interest rate movements, asset quality, and regulatory changes should be carefully considered by investors.
Conclusion
Ping An Insurance remains a major player in the Chinese insurance and financial services market. Its diversified business model and technological advancements position it to capitalize on China’s growing wealth management needs. While supportive government policies provide near-term tailwinds, ongoing challenges in the broader economy and regulatory environment pose potential risks to its long-term growth trajectory.
