Ping An Insurance – Concerns easing

Excerpts from CGSCIMB report

Ping An Insurance (HKG: 2318)

• We see less reason to be concerned about the multiple factors that have weighed on Ping An’s share price in recent years.
• Despite recent share price strength, Ping An’s underperformance since start of 2021 has only been partially unwound; we still see further potential upside.
• While there are uncertainties over 1Q23F’s jumpstart sales, we see this as a short-term uncertainty and are confident about growth thereafter.

Maintain Add rating, but raise TP to HK$73 on higher FY23F–24F EPS and NBV, largely due to higher FY23F-24F EPS and NBV.

Less reason to be concerned

Recent developments have eased our concerns on multiple fronts for Ping An. Investment asset and banking asset quality risks have reduced given the numerous measures announced to ease liquidity pressure on China’s property sector, though we point out that as of end-Nov, there was still little evidence of increased credit being provided to that sector. Easing Covid-zero measures help life insurance agent recruitment and sales, as well as the economic outlook, in our view (thus helping the credit insurance segment of the property and casualty (P&C) segment). Rising bond yields help investment returns and life insurance profits, with a recent A-share market rebound also helping investment returns, as well as asset management and securities income. Recent rebounds in tech valuations are also helping the fintech and healthtech portion of our SOP valuation.

Past two years’ share price underperformance slowly unwinding

With the improving outlook, Ping An’s share price has rebounded strongly over the last month, up 47%, the best of the listed China insurers. However, this only partially unwinds its previous underperformance in 2021 and 2022. Even with its recent strong share price rebound, it is still down 12% in YTD 2022, and barely outperformed the MSCI China insurance index’s 12% fall. Ping An’s share price also fell by 39% in 2021, the worst performer among the HK-listed China insurers.

Jumpstart uncertainties for 1Q23F, but better outlook thereafter

While we see China’s easing Covid-19 measures as positive, the recent increase in daily Covid-19 cases creates some uncertainties over sales during 1Q22’s jumpstart campaign. Nevertheless, we see this as only a short-term uncertainty and remain confident of a much better yoy sales outlook thereafter, especially given the low base for growth yoy from 2Q23F onwards.

Valuation/Recommendation

Reiterate Add given its attractive valuations. SOP-based TP raised to HK$73 from HK$57 due to higher FY23-24F EPS (mainly driven by better premiums and investment income) and NBV. Potential re-rating catalysts: better premium growth, and stabilising agent numbers. Downside risks: A-share market weakness and Covid-19 policy tightening.

You can find the full report here and the company website here.