Core views
In the context of pricing interest rate adjustments, the company's NBV still achieved impressive performance in the third quarter alone, further verifying that the company has achieved remarkable results in further channel reform over the past few years. It is expected that the company's NBV will also achieve relatively rapid growth throughout the year. Looking ahead to next year, after not speculating on housing, new asset management regulations, and net worth of wealth management products, savings insurance is still highly competitive as a scarce investment option in the current market. It is expected that it will meet more steady investment needs from residents. With the company's diversified and high-quality channel layout, NBV is also expected to continue its growth trend next year. The company's current valuation is clearly at a low level, which is not in line with the excellent performance of the company's fundamentals. We believe that the cost performance ratio of the company's current configuration is outstanding, and we recommend focusing on it.
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Ping An of China discloses results for the first three quarters of 2023
In the first half of 2023, the company's net operating profit for the first half of 2023 was -9.8% to 112.482 billion yuan; life insurance and health insurance business NBV was +40.9% to 33.574 billion yuan; financial insurance business insurance service revenue was +6.8%, with a comprehensive cost rate of +1.6 pct to 99.3%; and an annualized comprehensive investment return of 3.7%.
Brief review
1. Overall performance: The asset management business and technology business dragged down operating profit, but the resilience of life insurance business profits highlighted that the parent operating profit for the first three quarters was -9.8% year-on-year to 112.482 billion yuan, mainly due to the asset management business and technology business's parent operating profit of -177.8% and -60.0% year-on-year, to -4,344 billion yuan and 2,263 billion yuan, respectively. In the third quarter alone, net operating profit was -20.5% year-on-year to 30.525 billion yuan, mainly due to asset management business operating profit of -587.0% year-on-year to -5756 billion yuan. Net profit was -5.6% year-on-year in the first three quarters to 87.575 billion yuan, and -19.6% for the third quarter alone to 17.734 billion yuan.
2. Life insurance and health insurance business: NBV still achieved relatively rapid growth in the context of pricing interest rate changes. The per capita production capacity improved dramatically in the first three quarters. NBV was +40.9% year-on-year to 33.574 billion yuan. The increase in NBV was mainly driven by the increase in new insurance premiums. The first three quarters were used to calculate NBV's first-year premium of +44.8% year-on-year to 144.764 billion yuan. NBVM was -0.6pct to 23.2% yoy.
In the third quarter alone, NBV was +28.6% yoy to 7.614 billion yuan, which is used to calculate NBV's first-year premium of +29.3% yoy to 30.863 billion yuan.
By channel: 1) The agent channel gradually improved the team structure through merit groups, refined management, and gradually improved the team structure. The per capita production capacity increased dramatically. The per capita NBV in the first three quarters was +94.4% year-on-year. As of the end of 23Q3, the number of personal life insurance sales agents was 360,000, -3.7% over the end of June and -26.3% year over year.
2) Strengthen collaboration and integration between banking insurance channels and Ping An Bank, and continue to expand external partner bank channels; 3) Continue to promote the community grid business model. By the end of 23Q3, a team of highly qualified specialists of over 11,000 people had been formed, compared to 4,000 in the same period last year.
3. Financial insurance business: Insurance service revenue grew steadily, and the comprehensive cost ratio rose year on year. Revenue side: In the first three quarters, insurance service revenue was +6.8% year on year to 235.538 billion yuan, and the original insurance premium income was +1.8% year on year to 225.932 billion yuan. Among them, auto insurance, non-car insurance, and health insurance were +6.2%, -6.7%, and -6.3% year-on-year to 154.61 billion yuan, 53.360 billion yuan, and 17.911 billion yuan respectively. In the third quarter alone, insurance service revenue was +5.0% year over year to 79.639 billion yuan, and original insurance premium income was -4.6% year over year to 71.796 billion yuan, of which auto insurance, non-auto insurance, and health insurance were +6.2%, -34.1%, and +0.3%, respectively, to 53.13 billion yuan, 12.720 billion yuan, and 5.763 billion yuan.
Cost side: In the first three quarters, the comprehensive cost rate was +1.6pct to 99.3% year-on-year. Among them, the comprehensive cost rate for car insurance was 97.4%, which continued to outperform the industry. The main reasons for the increase in the comprehensive cost rate are: 1) Affected by the typhoon and torrential rain, the cost of auto insurance and non-auto insurance compensation rose. The comprehensive cost rate increased by +1.1 pct year-on-year; 2) the recovery in travel demand from car insurance customers, and the insurance guarantee business was affected by changes in the market environment, and overall costs fluctuated.
4. Asset side: The return on net investment declined slightly, and the scale of real estate investment in property rights increased year on year. The annualized comprehensive investment yield of the company's insurance capital portfolio in the first three quarters was 3.7%, and the annualized net investment return was -0.2 pct to 4.0% year on year. The real estate investment structure in insurance capital portfolios has changed. The share of property investment has increased, and the share of equity investment has decreased. As of the end of 23Q3, the real estate investment balance in the company's insurance capital portfolio was 209.482 billion yuan, +1.4% year-on-year, accounting for 4.5% of total investment assets, -0.3 pct year-on-year. This type of investment is mainly property investment (including direct investment and owned property invested in the form of equity in the project company). Measured using the cost method, it accounted for 76.1% of real estate investment, +20.1 pct over the previous year. Debt investment accounted for 18.9%, -2.3 pct over the same period last year. Equity investment accounted for 5.0%, year-on-year -17.8pct.
5. Banking business: The operating performance remains steady, and the overall asset quality is stable.
In the first three quarters, net profit was +8.1% yoy to 39.635 billion yuan, and net interest spread (annualized) -0.30pct yoy to 2.47%. In terms of retail business, as of the end of 23Q3, managed retail customer assets (AUM) were 3998.848 billion yuan, +11.5% compared to the beginning of the year; the number of retail customers was 124.837 million, including 1,3693 million wealth customers, +8.2% over the beginning of the year; and the personal deposit balance was 1176.532 billion yuan, +13.7% over the beginning of the year.
The overall quality of assets is stable. As of the end of 23Q3, Ping An Bank's non-performing loan ratio was 1.04%, -0.01pct compared to the beginning of the year; the provision coverage rate was 282.62%, and the risk offsetting capacity remained good.
6. Asset Management & Technology Business: Profit declined sharply year over year
In the first three quarters, due to the macroeconomic environment, there was a decline in business volume and changes in project valuations, compounded by fluctuations in the capital market, weak market investment demand, and a decline in asset management business profits. The net operating profit for the first three quarters and the single third quarter was -177.8%, -587.0% year-on-year, to -4.344 billion yuan and -756 billion yuan, respectively.
In the first three quarters, technology business revenue was under pressure, and net profit declined year over year. The operating profit of the technology business for the first three quarters and the third quarter was -60.0% and -29.3% year-on-year, respectively, to 2.263 billion yuan and 528 million yuan.
Investment suggestions: The impressive growth rate of NBV validates the effectiveness of earlier reforms. The comprehensive financial and medical ecosystem drives long-term value growth. In the context of pricing interest rate adjustments, the company's NBV still achieved impressive performance in the third quarter, further verifying that the company's achievements in further channel reform over the past few years have been remarkable. It is expected that the company's NBV will also achieve relatively rapid growth throughout the year. Looking ahead to next year, after not speculating on housing, new asset management regulations, and net worth of wealth management products, savings insurance is still highly competitive as a scarce investment option in the current market. It is expected that it will meet more steady investment needs from residents. With the company's diversified and high-quality channel layout, NBV is also expected to continue its growth trend next year. In the long run, the synergy of the comprehensive financial and medical ecosystem is expected to provide sufficient impetus and a deep moat for the company's long-term value growth.
In the long run, as residents' awareness of independent old-age care increases, future pension finance products have broad scope for development. The company relies on the Group's healthcare ecosystem to deepen the three core services of healthcare, home care, and high-end old-age care. With the combination of products and health care services, it is expected that it will continue to benefit from the continued expansion of the pension finance market. Recently, regulators have introduced a series of policies, such as the “integration of banking insurance channels” and the “Notice on Strengthening Management to Promote the Stable and Healthy Development of Personal Insurance Business”, etc., which will help manage market chaos, create a clean development environment for the industry, and promote insurance companies to reduce operating costs and improve debt quality. In the long run, they are conducive to improving the profitability of the life insurance industry and achieving high-quality development.
On the asset side, the stock market has recently ushered in a series of positive signals, including Huijin's move to increase its holdings of bank stocks and ETFs, and the continued recovery of economic data. The number of listed companies that have combined repurchases, increased their holdings, and did not reduce their holdings continues to increase, which is conducive to boosting market sentiment. Even though the current market valuation level is already low, we are still optimistic about long-term recovery in stock market trends, which in turn drive asset side performance recovery.
In terms of dividends, it is expected that the company's profit stability throughout the year will be superior to that of its peers, providing a solid foundation for a stable dividend level.
The company's current valuation is clearly at a low level, which is not in line with the excellent performance of the company's fundamentals. We believe that the cost performance ratio of the company's current configuration is outstanding. It is estimated that the company's NBV growth rate in 2023/2024/2025 will be 26.1%/10.7%/11.6% respectively, giving the company a target price of 58.3 yuan for the next 12 months, 0.7 times the PEV corresponding to 2023, maintaining the “buy” rating.