Matters:
Ping An of China released its 2023 annual report. In 2023, the company achieved a new business value of 39.262 billion yuan, +36.2% year over year; as of the end of 2023, personal insurance included a value of 930.160 billion yuan, +6.3% year over year. Operating profit to the mother was 117.989 billion yuan, -19.7%; net profit to the mother was 85.665 billion yuan, -22.8% year on year; ROE reached 9.7%, -3.5 pct year on year; net assets to the mother were 899.011 billion yuan, +3.4% year on year. Net/total/comprehensive return on investment 4.2%/3.0%/3.6%, -0.5pct/+0.6pct/+0.9pct year over year.
The annual dividend was $2.43 per share, +0.4% YoY.
Commentary:
High quality agents+value banking insurance are dual drivers. Volume dominates, and personal insurance has achieved a high NBV increase. On a comparable scale, new business value of 39.262 billion yuan was achieved in 2023, +36.2% year over year; premiums for the first year were 165.784 billion yuan, +38.9% year over year; new business value ratio was 23.7%, -0.5pct year on year. Based on the latest assumptions such as return on investment and risk discount rate, the personal insurance business achieved a new business value of 31.08 billion yuan, -20.8% compared with the original assumption, and a new business value ratio of 18.7%. Looking at the channel structure, the agent channel contributed 32.169 billion yuan, +40.3% year over year, and the new business value rate -4.3pct to 32% year over year; benefiting from Ping An Bank's deepening exclusive agency model and expansion of external bank cooperation outlets, the banking insurance channel contributed NB3.3643 billion yuan, +77.7% year over year, and +69.1% year over year. The new business value ratio was +0.9 pct to 20.1% year over year.
The transformation of agents continues to deepen, and the results of improving quality have been remarkable. By the end of 2023, the number of personal life insurance agents was -22.0% year-on-year to 347,000, and the decline was slightly narrower than in 2022 (-25.**** An Life Insurance is committed to high-quality transformation and focuses on cultivating high-performing teams. “Excellent +” accounted for +25.2 pct of new manpower in 2023, agent activity rate was +2.5 pct year over year, and per capita monthly income was +39.2% to 9,813 yuan.
Benefiting from the dilution of the number of people and the increase in the proportion of merit, the NBV per agent in 2023 was +89.5% compared to 90,285 yuan. In addition, there was also a marked increase in the quality of insurance policies. The 13/25-month policy continuation rate was +2.5pct/6.8pct compared to 92.8%/85.8%, respectively.
New personal business orders are impressive, and traditional insurance/universal insurance contribute to the main growth rate. In 2023, the personal insurance business achieved large-scale premiums of 601.934 billion yuan, +10.9% year-on-year. Judging from the payment structure, the new business in the personal business was 181.973 billion yuan, +52.2% year on year; the total amount of prepaid premiums amounted to 106.376 billion yuan, +26.0% year over year, with a decline in term ratio. Looking at the insurance type structure, traditional insurance and universal insurance contributed to the main growth rate. Among them, traditional insurance achieved large-scale premiums of 163.48 billion yuan, +35.0% year over year, accounting for 27.2%; universal insurance reached 115.759 billion yuan, +36.6% year over year, accounting for 19.2%; dividend/annuity insurance/long-term health insurance/eHealth Insurance all declined year on year, accounting for 10.4%/18.3%/18.2%/6.6%, respectively.
Industrial insurance premiums remained booming, and underwriting losses occurred due to credit guarantee insurance. In 2023, Ping An Insurance achieved insurance service revenue of 313.458 billion yuan, +6.5% year over year; overall COR reached 100.7%, +1.1 pct year over year, mainly hampered by credit guarantee insurance. After exclusion, COR was 98.4%. In terms of the overall insurance structure, the share of non-vehicle insurance has increased. In 2023, car insurance achieved insurance service revenue of 209.538 billion yuan, +6.1% year on year; non-auto insurance (excluding iHealth Insurance) of 82,041 billion yuan, +12.9% year on year; and eHealth Insurance -9.3% year over year. Auto insurance maintained a good profit level, with a COR of 97.7% in 2023 and 96.6% excluding the impact of natural disasters. In terms of non-car insurance, only health insurance/corporate financial insurance achieved underwriting profits. COR corresponded to 95.2%/97.7%; credit guarantee insurance/liability insurance/accident insurance were 131.1%/106.3%/106.0%, respectively, of which accident insurance was +11.5pct compared to the same period. The company has suspended the financial guarantee insurance business in 2023Q4. In the future, it will gradually clear out the stock risk business and enhance the overall profitability of industrial insurance.
Net return on investment declined, and total/comprehensive return on investment increased. By the end of 2023, the company's insurance capital portfolio was over $4.72 trillion, +9.0% compared to the beginning of the year. In 2023, the company achieved a net/total/comprehensive return on investment of 4.2%/3.0%/3.6%, -0.5pct/+0.6pct/+0.9pct year-on-year. In terms of allocation structure, fixed income accounted for 68.3%, +2.2pct year on year, of which bond investment was 58.1%, +3.5pct year on year; equity (equity financial assets+long-term stock investment) accounted for 17.3%, -0.2pct year on year, of which stocks and funds accounted for 9.3%, +0.6 pct year on year; non-standard share 8.8%, -1.5pct year on year; real estate investment 4.3%, year-on-year.
Considering the new financial instrument guidelines, FVOCI accounts for 59.9% of stock investment, compared to 7.1pct in the medium term.
The main business is steady, and short-term investment fluctuations affect the decline in net profit. In 2023, the company achieved operating profit of 117.989 billion yuan, -19.7% year-on-year. The Group's three core businesses (personal insurance, industrial insurance, banking) had a total operating profit of 140.9 billion yuan, a slight decrease of 2.8% over the previous year. Among them, after excluding one-off events during the same period and the impact of lower return on investment, the personal insurance sector achieved operating profit +0.6% YoY; banking business +2.1% YoY. The Industrial Insurance/Technology business segment achieved operating profit of -11.4%/-65.1% year-on-year, respectively. The asset management business lost money, with operating profit of 20.747 billion yuan attributable to parent. The main reason was the provision and depreciation of some assets. On the basis of operating profit, due to equity market shocks, short-term investment fluctuations lost 32,692 billion yuan, which dragged down the company's net profit to mother of 85.665 billion yuan in 2023, or -22.8% over the same period last year.
The long-term return on investment/risk discount rate for the company's life insurance and health insurance businesses in 2023 is assumed to be reduced by 0.5 pct/1.5 pct to 4.5%/9.5%, respectively. As of the end of 2023, the included value of life insurance under comparable caliber reached $930.160 billion, +6.3% over the same period last year. The implied value under the new hypothesis reached 830.974 billion yuan, -10.7% compared with the original hypothesis, and the group's embedded value was 1390.126 billion yuan. We believe that in a context where long-term interest rates continue to decline and assets are scarce, a reduction in the company's return on investment assumptions will help match assets and liabilities more carefully, and a reduction in risk discount rate assumptions will also help the company develop steadily and consolidate the reporting base.
Investment advice: The company's NBV growth rate continued to outperform the industry in 2023, mainly due to product policy changes, implementation of agent reform results, and continuous value transformation of banking insurance channels. Industrial insurance is growing steadily, but guarantee insurance continues to put pressure on COR. It is expected that subsequent companies will improve the overall profit level by clearing high-risk businesses and optimizing the structure. On the asset side, net return on investment declined due to capital market resonance, but total/comprehensive return on investment showed an upward trend. Looking ahead to 2024, considering the integration of reporting and banking and the first complete annual insurance policy sales situation in the 3.0% era, combined with the company's continued promotion of the “4 channel+3 product” strategy, it is expected that NBV will continue to maintain a positive upward trend under pressure. Considering the transition between the old and new guidelines, we lowered the 2024-2026 EPS forecast to 6.7/7.9 yuan (the value was 8.1/9.6 yuan before 2024-2025). The estimated PEV in 2024 is 0.7 times, corresponding to the target price of 56.6 yuan, maintaining the “strong push” rating.
Risk warning: regulatory changes, agent reforms falling short of expectations, declining long-term interest rates, equity market turbulence