Ping An Insurance released the third quarter report of 2021: the company's net profit in the first three quarters of 2021 was 81.64 billion yuan, down 20.8 percent from the same period last year; the value of new business was 35.24 billion yuan, down 17.8 percent from the same period last year. The decline was mainly affected by short-term investment fluctuations and impairment of the Huaxia Happiness Project, but operating profit rose 9.2 per cent year-on-year. The decline in the value of new business is mainly due to the shrinking size of the team and the pressure on the superimposed long-term guarantee business.

The new single business and value growth continue to be under pressure, and the agent structure is constantly optimized. In the first three quarters, the company's new single premiums were-4.5% year-on-year, which was further lower than + 3.7% in the first half of the year. The new business value rate dropped sharply to 30.7% from the same period last year, which is the main reason for the decline in value scale. The continuous pressure on the new single business is mainly due to the fact that the company persisted in promoting high-quality transformation and strengthening manpower clearance. The number of agents in the first three quarters decreased by 31.0% to 706000 compared with the beginning of the year, resulting in greater pressure on customers and transformation. At the same time, under the influence of factors such as superimposed epidemic situation, the demand for long-term protection business such as serious diseases continues to be under pressure, and the decrease in the proportion of high value rate business leads to a significant decline in the overall value rate, which is a drag on the growth of new business value. However, the company continued to promote the fine operation of the agent team and achieved initial results. In the first three quarters, the per capita NBV of agents increased by 5.4% compared with the same period last year, and the diamond team remained relatively stable, and the team structure was continuously optimized on the basis of increased production capacity. In addition, the company's group business achieved relatively rapid growth, premiums in the first three quarters increased by 8.3% compared with the same period last year, with a scale of 13.86 billion, and the business contribution further increased. Judging from the trend, the decline in the value of the company's new business in the third quarter is narrower than that in the second quarter, and it is expected that with the gradual stabilization of the manpower scale and the continuous improvement of the quality of the team, the value growth rate will gradually stabilize in the fourth quarter and next year.

Property insurance premiums fell year-on-year, and accident and health insurance businesses performed well. In the first three quarters, the company's property insurance premium income fell 9.2% to 199.34 billion yuan compared with the same period last year, of which car insurance premiums fell 7.9% year-on-year, 1.0pct lower than the first half of the year. The decline in single average premiums caused by the comprehensive car insurance reform is the main reason, and the number of underwritten pieces is expected to increase to a certain extent. Non-car premiums fell by 21.0%, further adding to the downward pressure on the overall business. However, accident and health insurance premiums increased by 31.7% compared with the same period last year, further higher than in the first half of the year. In addition, the comprehensive cost rate fell 1.8pct to 97.3% compared with the same period last year, an increase of 1.4pct over the first half of the year. The former mainly contributed to ensuring the clearing of insurance risks, while the latter was related to the cardinal factors of comprehensive car insurance reform. Considering that the comprehensive car insurance reform has been completed for one year, the impact will gradually weaken in the later period, and it is expected that the premium growth rate and the comprehensive cost rate will remain stable after the fourth quarter.

The total investment income declined, while the net investment income increased. In the first three quarters, the company's total return on investment and net return on investment decreased by 1.5 and 0.3 percentage points respectively compared with the same period last year, mainly due to the shock of long-term interest rates and equity markets. Among them, the cumulative impairment of Huaxia happiness-related investment assets has been about 35.9 billion yuan by June 2021, but with the gradual progress of the Huaxia Happiness debt liquidation plan, the impairment pressure is expected to be greatly reduced. The level of investment income of the company will return to normal. In the third quarter, the company continued to optimize the asset-liability matching of insurance funds, actively allocated a large number of treasury bonds, local government debt and other long-term assets, the expected asset-liability gap continues to narrow, resilience is enhanced, and investment income is expected to be stable.

Investment advice: the company is always in the forefront of the industry in terms of team transformation and scientific and technological empowerment, and has the synergy advantages of comprehensive finance, better breadth and depth of customer access, and better long-term growth. The current low valuation is related to the short-term investment-side risk and weak growth. With the improvement of business growth and investment-side risk digestion under the reform, valuation may have the potential to improve. The EPS of the adjusted company in 2021, 2022 and 2023 is 6.92,7.91,9.07yuan respectively. Maintain prudent overweight ratings.

Risk hint: the progress of the company's transformation is not as expected, and the equity market is volatile.