20220321-招银国际-中国平安-02318.HK-Agency_reform_well_on_track_7页_990kb

Ping An (2318 HK) Company Update Summary

Core Content

Ping An, a major player in China's insurance sector, reported its FY21 results, showing a 23.6% YoY decline in VNB and 6.1% growth in OPAT, aligning with estimates but slightly exceeding market expectations. The company is maintaining its BUY rating with a target price of HK$81.40, implying a +41.2% upside from the current price of HK$57.65.

Main Points

• Agency Reform Progress: The digital agency reform is well on track, with pilot projects covering 30% of branches by the end of FY21. Agent productivity increased 30% YoY, and early piloted branches saw a 10% YoY improvement in VNB. The company aims for nationwide implementation by the end of FY22.

• Dividend Policy: Ping An increased its full-year dividend per share by 8.2% YoY to RMB2.38, with a higher payout ratio based on OPAT. This is seen as a positive signal for shareholder returns.

• Solvency Position: Under the new C-ROSS 2.0 regime, the core solvency margin of the group/life/P&C segments remains above 100%, significantly above the regulatory requirement of 50%.

• Real Estate Exposure: Real estate investment exposure stabilized at 5.5% of total assets at the end of FY21, following RMB43.2bn in impairments. The investment balance in real estate amounted to RMB216bn, or 27% of Ping An's book value, with 26% equity investment, 27% debt, and 47% physical holdings.

• Earnings Overview: Net profit declined 29% YoY to RMB102bn, mainly due to a 28% drop in investment income and a RMB9.9bn non-operating loss. However, the company expects sequential improvements in new business momentum starting from 2Q22.

• Valuation: Ping An's A and H shares trade at 0.6x P/EV and 1.0x P/BV for FY22E, with an operating ROE of 19%, near a historical low. The current share price is considered to have already factored in the worst-case scenarios, suggesting potential for recovery with progressive dividends and improved asset quality.

Key Financial Highlights

Life Insurance Segment

• VNB Decline: VNB declined 23.6% YoY to RMB37.9bn, with a 43.4% drop in 2H21. Excluding assumption changes, the decline was 18.6% YoY.
• OPAT Growth: OPAT grew 3.5% YoY to RMB147.96bn, translating into 11.7% YoY growth in 2H21.
• EV Growth: Life EV grew 6% YoY to RMB876.5bn, with a 3.4ppt decrease in operating ROEV to 11.1%.
• Agent Performance: Agent productivity (FYP basis) increased 27% YoY, while agent income slightly declined 1% YoY. Agent headcount dropped to 0.6mn, down 41% YoY.

Property & Casualty Insurance Segment

• Combined Ratio: Improved by 1.1ppt YoY to 98.0%, outperforming the industry average of 101%.
• Underwriting Profit: Rose 146% YoY to RMB5.14bn.
• Auto Insurance: Combined ratio deteriorated 0.7ppt YoY to 98.9%, but premium income declined 4% YoY.
• Non-Auto Insurance: Combined ratio improved 5.5ppt YoY to 96.2%, with a 10% YoY decline in premium income.

Ping An Bank

• Net Profit: Increased 25.6% YoY to RMB101.6bn, driven by strong wealth management and investment income, and lower provision charges.
• NIM: Edged down to 2.79% in FY21, down 9bps YoY and 1bps QoQ.
• NPL Ratio: Improved to 1.02%, but the special mention ratio increased 2bps QoQ.
• Capital Adequacy Ratio: Remained stable at 13.34%, above the regulatory threshold of 10.5%.

Key Ratios

• Operating ROE: Declined slightly to 18.9% in FY21, with expectations of improvement in FY22 and onwards.
• Net Investment Yield: Declined to 4.6% in FY21, with projections for further decline in FY22.
• Total Investment Yield: Declined to 5.3% in FY21, with a projected decline in FY22.
• Comprehensive Investment Yield: Declined to 3.9% in FY21, with a projected decline in FY22.

Conclusion

Ping An's performance in FY21 was marked by a significant VNB decline but strong OPAT growth, driven by ongoing agency reforms and improved asset quality. Despite challenges in the life insurance segment, the company is expected to benefit from its progressive dividend policy and potential recovery in new business momentum. The P&C segment outperformed in terms of combined ratio and underwriting profit, while Ping An Bank showed resilience in net profit and capital adequacy. The company's current valuation appears attractive, with the potential for recovery in the coming quarters.