1Q24 net profit was better than our expectations
Ping An of China announced 1Q24 results: operating profit -3.0% YoY, net profit -4.3%, better than our expectations, mainly due to life insurance operating profit +2.2% YoY, better than our expectations; New Business Value (NBV) -5.9% YoY, +20.7% YoY after restating last year's NBV using the same actuarial assumptions; Comprehensive Financial Insurance Cost Ratio (CoR) was 99.6%, +0.9ppt year over year, which is basically in line with our expectations.
Development trends
The NBV trend was better than management's expectations at the beginning of the year. The company's 1Q24NBV (under comparable caliber) +20.7% YoY, first-year premium (FYP) -13.6% YoY, and FYP-based value ratio +6.5ppt to 22.8% year over year. At the performance meeting, the company stated that in the future, it will actively meet customers' pension security and wealth management needs while reducing debt costs, and drive business growth through improved product and channel capabilities.
CoR was affected by the torrential rain disaster and guarantee insurance payouts +0.9ppt year over year, which is in line with our expectations. The 1Q24 financial insurance CoR was +0.9ppt to 99.6% year-on-year. If the guarantee insurance CoR was 98.4%, the impact of the Blizzard disaster on the first quarter CoR was +2ppt.
Core business profit performance has been steady, and depreciation pressure on the asset management sector has eased. In 1Q24, the company's net profit was -4.3% year-on-year and operating profit was -3.0%. Among them, the operating profit of the three core business sectors (life insurance, financial insurance, banking) remained stable (+0.3% year over year), and the net profit of the asset management sector was -30% to 910 million yuan, which turned losses and profits from 4Q23, and the profit recovery trend was positive. The company stated at the performance meeting that the depreciation pressure on the asset management sector had been clearly mitigated, and the overall risk was manageable. The company's annualized net investment/comprehensive return on investment1 in the first quarter reached 3.0%/3.1%, respectively. The net return on investment was -0.1ppt year-on-year, and the performance was steady.
The potential risk unduly affects the valuation, and the recommendation is reiterated. Despite having a high investment base in 1Q24, we have previously indicated that life insurance profits are expected to be better than market expectations. Based on the fact that for high-quality companies with sufficiently thick interest spreads in stock business, rapid growth in debt size will offset some of the declining investment returns. This is also the reason why we have repeatedly indicated that the market has amplified the risk of potential interest spreads and losses in Ping An. At the results meeting, management said, “We are confident that the company will return to high-quality growth in the next three years, that Ping An Trust will comply with the requirements of the new asset management regulations and that it is quite confident that the dividend policy will be maintained.” Looking backwards, we expect the investment base to decline from 2Q24, and the debt side may further lower pricing interest rates in the near future, and the company's current profit and subsequent trends are expected to improve further. Furthermore, it is recommended to pay attention to the subsequent situation in the asset management sector. If the company's depreciation pressure continues to improve during the subsequent reporting period, it is expected to further open up space for the company's valuation repair.
Profit forecasting and valuation
We kept 24e/25e EPS unchanged at 7.2 yuan/8.5 yuan/share. The current A/H stock price corresponds to 0.5x/0.4x 24ep/eV. Maintaining Safety - A/H outperforms the industry rating and target price of HK$58.9/51.1. The target price corresponds to 0.7x/0.5x 24ep/eV, with 48%/55% upside compared to the current stock price.
risks
The increase in premiums for new orders fell short of expectations; long-term interest rates fell sharply; capital markets fluctuated greatly; and policy and regulatory uncertainty.