Profit declined slightly, and life insurance recovered
Ping An of China announced its 1Q24 results on April 23. We believe the overall performance is good. EPS RMB2.07 fell 4.6% year on year, mainly because investment performance was slightly weaker than the previous year's performance. Comparatively speaking, the equity market performed well in the first quarter of last year. Operating profit (OPAT) decreased by 3% year-on-year on a comparable scale, mainly driven by the decline in operating profits in the asset management and technology sectors. The new life insurance business value (NBV) grew strongly, with a year-on-year increase of 20.7% on a comparable scale. We think this is the biggest highlight of this performance, reflecting the growing willingness of consumers to buy life insurance products in a low interest rate environment. The comprehensive cost ratio (COR) for property insurance was 99.6%, up 0.9 ppts year over year, mainly affected by credit guarantee insurance losses and the snow disaster at the beginning of the year. We fine-tuned 2024-2026 EPS to RMB7.58/7.99/8.24 (previous value:
7.46/8.08/8.30), maintaining a target price of RMB70 (A) /HKD69 (H) and a purchase rating based on the SOTP valuation method.
Increased profit margins for life insurance products, driving NBV growth
NBV grew 20.7% year over year, which is a strong level considering there were no good starts this year.
New policy premiums fell 14% year over year in the first quarter, indicating that NBV's growth was entirely driven by rising profit margins.
The NBV profit margin, which is based on new policy premiums, rose sharply to 22.8% from 16.3% the previous year. We believe that lower pricing rates, product structure improvements, and cost reductions may be the main reasons for the increase in profit margins. In an environment where interest rates are declining, improving profit margins is an important means of resisting the risk of interest spreads and losses. The number of agents decreased by 18% compared to the same period last year, indicating a sharp increase in per capita production capacity, continuing the improvement trend since 2022. Even considering 2Q23's NBV high base pressure (yoy 80+%), we believe Ping An is still likely to achieve positive NBV growth in 1H24. We expect an 11% increase in NBV in 2024.
The impact of property insurance liquidation credit guarantee insurance
Property insurance COR reached 99.6% in the first quarter, which is a historically high level, mainly affected by credit guarantee insurance and natural disasters. The company disclosed that the COR after deducting credit guarantee insurance was 98.4%; however, the rain and snow disaster in the southern region at the beginning of the year boosted COR by 2 ppts. Ping An stopped the financial credit guarantee insurance business in 4Q23. The negative pressure on underwriting performance is expected to subside as the stock business gradually clears up. The COR for Ping An Auto Insurance business in 2023 is 97.7%, which is a healthy level. We believe that car insurance is expected to support the overall underwriting performance in 2024. We expect COR of 98.3% in 2024.
Excellent return on capital
Ping An's first quarter results showed strong profit resilience. Although overall OPAT declined slightly, life insurance OPAT has resumed growth. As the new life insurance business continues to grow, operating profit is expected to return to growth. Net profit declined slightly, indicating better control of investment fluctuations. We expect Ping An's ROE in 2024 to be 14%.
Risk warning: NBV has declined sharply, COR has risen sharply, and investment has experienced significant losses.