Leading Chinese insurer Ping An Insurance Group is one of the largest financial services firms in China. On top of its core insurance business, it holds stakes in other related businesses, notably, 8.3% of HSBC Holdings.
With the economy’s re-opening, Ping An is seen as a potential beneficiary of the changing business environment. “Sectors such as internet, insurance, casinos have shown robust improvements in their fundamentals, surpassing analysts’ expectations,” comments DBS.
For its 1QFY2023 ended March 2023, Ping An managed stronger-than-expected value of new business (VNB) growth. Under revised accounting rules, Ping An’s VNB grew 21.1% y-o-y in 1QFY2023, based on like-for-like comparison adjusted for actuarial assumption changes. If the adjustment is factored in, VNB rose 8.8% y-o-y. “The resilient growth of VNB will contribute to the contractual service margin accumulation and the operating profit improvement in the long term,” says DBS.
However, margins fetched by the VNB declined by 3.7 percentage points, mainly because of a change in product mix to savings. Overall, the company is guiding for positive full-year growth in this key metric. For now, 1QFY2023 earnings increased by 48.8% y-o-y to RMB38.4 billion ($7.2 billion), ahead of many analysts’ expectations, thanks to higher investment income.
Insurers’ share prices have corrected since a couple of months ago, and that since the structural recovery trend is intact, prices at current levels are a good re-entry point, says DBS, which has a “buy” call and a HK$72 (about $12.45) price target on Ping An’s stock. “The market is still underestimating life insurers’ VNB growth potential, despite the previous round of upgrades,” says DBS.
On top of improvements already shown, the company is seen to continue showing better results. Steven Lam of Bloomberg Intelligence expects Ping An’s operating profit after tax and dividends to pick up pace in the second half of 2023, if China’s economic growth continues to accelerate. “Life new-business value should be supported by robust demand in savings products, and if sales of long-term protection products can recover later this year, on better consumer confidence,” says Lam.
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In addition, Ping An’s investment performance should be on the mend, thanks to better dividend payout by HSBC, in which Ping An is the largest shareholder. A pick-up in other equities and bond yields should help in this regard too, says Lam.
Also, a better macro outlook should help reduce credit insurance claims and drive property and casualty premiums, albeit with a rise in auto-claims frequency. “Banking profit might also be supported by an improvement in asset quality as well as loan growth in the consumer and SME segments,” adds Lam.
The company has overwhelming positive ratings. Based on our in-house valuation, we think Ping An’s fair value is around HK$60.93, roughly 25% above its current trading price of HK$48.90. According to Bloomberg data, there are 31 “buy” calls, with target prices mainly ranging between HK$70 and HK$80, with Bernstein leading the bulls with a call of HK$100. There are just three “holds”, and a lone “sell” rating from Macquarie, which sees the stock worth just HK$38.20.
