EUR 850.00 For Business Accounts Only

Morningstar | Ping An's 3Q Growth Continues to Lead the Industry

No-moat Ping An Insurance’s third-quarter results showed faster-than-peer growth, with total revenue and net profits increasing 13.2% and 19.7% from the year-ago period. Since Ping An is the only listed Chinese insurer to adopt IFRS9, net profit growth would be 35% before the implementation. The results highlight healthy growth in new business value, or NBV, improving to 11% versus a growth of 10% and a decline of 7% in the second and first quarters, respectively. This is contrary to negative NBV growth for most listed peers and was driven by its 4% growth in annualized new premium and a strong NBV margin improvement. Because the results were largely in line with our expectations, we are maintaining our CNY 80 fair value estimate for A shares and HKD 92 for H shares. We expect Ping An to achieve around 20% embedded value growth in 2018. With the H shares trading at a 21% discount to our fair value estimate, we believe the stock is undervalued, as the market seems overly concerned about a short-term regulatory impact to the company. But we believe such an impact is mitigated by the strong underlying growth momentum across major business lines. Ping An’s customer-centered strategy progressed well over the quarter.

Underwriting profitability in property and casualty was steady despite rising industrywide challenges. Investment return remained relatively steady despite a volatile capital market, with gross investment returns flat from the first half at 4%. The rate reached 4.9% before IFRS9 was implemented, as financial investments recorded under fair value through profit and loss accounted for nearly 20% of total investment. Both financial customers and Internet customers increased 19% to 182 million and 513 million, respectively, with 32.5% customers purchasing more than one financial product compared with 27.1% in the year-ago period.

The group’s adjusted operating profits, which excluded short-term investment variance, the impact of a discount rate change, and one-off material nonoperating items growth, increased 19% from the year-ago period, indicating strong growth momentum of underlying business. The growth was primarily boosted by a 23% increase in life insurance, a 21% increase in asset management, and a 700% increase in its financial and healthcare technology business. Operating profit slowed in Ping An's tech business during the quarter, partially due to a 22% contraction in assets under management that were affected by stringent financial regulations in 2018. Adjusted operating profits of P&C insurance fell 22% on higher tax expenses. We’re not too concerned about the slowing growth, as Ping An's combined ratio remained better than peers' and the company continued to expand market share.

Operating profits from life insurance expanded to 65% of the group. Ping An's expansion of its agent workforce led the industry despite industrywide challenges, thanks to its industry-leading agent productivity. Agent headcount increased to 1.43 million quarter over quarter, up 3% from 2017. Due to a change in product mix under new regulations, first-year premiums per agent dropped 18% from the year-ago period to CNY 7,894 versus a 24% decline in the first half. Despite a 7% decline in new premium, the 4-percentage-point expansion in NBV margin resulted in a 3% growth in NBV. We expect full-year NBV growth to accelerate to high-single-digit levels.