Matters:
Ping An of China released its 2024 quarterly report. 2024Q1 achieved operating profit of 38.7 billion yuan, or -3.0% year on year; net profit to mother of 36.7 billion yuan, -4.3% year over year. Life insurance and health insurance achieved a new business value of 12.9 billion yuan, +20.7% year-on-year under a comparable scale; the value ratio of the new business was +6.5 pct to 22.8% year over year. Industrial Insurance achieved insurance service revenue of 80.6 billion yuan, +5.7% year over year, achieving a comprehensive cost ratio of 99.6%, and +0.9 pct year over year.
In terms of investment, 2024Q1 achieved an annualized net return on investment of 3.0%, -0.1 pct year on year; the comprehensive return on investment reached 3.1%.
Commentary:
The value ratio of new businesses improved significantly, driving NBV growth with price supplements. Under comparable standards, 2024Q1 achieved a new business value of 12.9 billion yuan, +20.7% year over year; premiums of 56.6 billion yuan for the first year, -13.6% year over year; and a new business value ratio of 22.8%, +6.5 pct year over year. The growth rate of new orders was slightly insufficient, mainly due to the opening up and tightening of new regulations and the continued promotion of “integration of reporting and banking” through banking insurance channels, which had an impact on the enthusiasm of terminal sales personnel.
The improvement in the value ratio of new businesses has significantly driven the value growth of new businesses. The main reason is that the reduction in pricing interest rates and the integration of reporting banks promote the optimization of both product and channel costs, and that the company actively promotes sales of security and pension products and optimizes the payment structure.
Agent channel production capacity has increased significantly, and the development of multi-channel enabling sales has been deepened. As of 2024Q1, there were 333,000 personal life insurance sales agents, which was -4.0% at the beginning of the year, and the decline was further narrower. The manpower quality of the team improved significantly, and the proportion of “excellent +” in the new manpower was +11.0 pct compared to the previous year. Driven by a high-quality team, production capacity per capita increased significantly, and the NBV per capita of the 2024Q1 agent channel was +56.4% year-on-year. The banking insurance channel has benefited from the integration of reporting banks, and channel costs have been reduced. At the same time, the company is actively developing cooperation with high-quality external banks. In addition, the company is focusing on community grid channels. As of 2024Q1, the sales force has exceeded 10,000, and has continued to grow. As of 2024Q1, the full subscription continuation rate for surviving customers in grid promotion cities was +2.5 pct year-on-year.
Actively lay out wealth, pension and security, improve the product system, and meet the diverse needs of customers. In terms of medical care, 2024Q1 has served more than 10 million customers; as of 2024Q1, safe home care services covered 54 cities, and a total of nearly 100,000 people were eligible for home care services. High-end nursing care has already been launched in the four cities of Shenzhen, Shanghai, Hangzhou, and Foshan. The company proactively builds a diversified product system. On the one hand, it can meet customer insurance needs and increase the overall value rate of new business; on the other hand, it also helps to increase the proportion of profit margins and cost differences, reduce dependence on interest spreads, and reduce pressure on the investment side.
The growth rate of industrial insurance is slightly lower than that of major peers, and COR is being dragged down by factors such as blizzards, guarantee insurance, and travel recovery.
2024Q1 Ping An Insurance achieved insurance service revenue of 80.6 billion yuan, +5.7% year-on-year. From the perspective of original premiums, the growth rates of the top three property insurance companies were: Taibao (+8.6%) > Human Insurance (+3.8%) > Ping An (+2.8%).
In terms of comprehensive cost ratio, the 2024Q1's overall COR reached 99.6%, +0.9 pct compared to the previous year, mainly affected by the blizzard disaster in the early Spring Festival, guaranteed insurance coverage, and travel recovery. Among them, Blizzard disaster/guarantee insurance had an impact of 2.0pct/1.2pct on COR this quarter, respectively.
The decline in long-term interest rates is dragging down the net return on investment. As of 2024Q1, the company's insurance capital portfolio was over $4.93 trillion, +4.4% compared to the beginning of the year. 2024Q1 achieved an annualized net return on investment of 3.0%, -0.1 pct year on year, mainly affected by the decline in interest rates on newly issued bonds and the maturity of existing high-yield bonds; the comprehensive return on investment reached 3.1%. Looking at the month-on-month changes, the company's net and comprehensive return on investment reached 4.2%/3.6% respectively in 2023. The differences include the seasonal impact of Q1 on the non-annualized treatment of interest income from the purchase and resale of financial assets, interest expenses on capital consolidation, differentiated income, income from investment differences, profit and loss from changes in fair value, etc. Non-standard exposure continues to narrow, which is expected to be related to the expiration of existing assets, new asset shortages, and the company's active control of risk exposure. As of 2024Q1, the total amount of non-standard exposure was 404.8 billion yuan, accounting for 8.2% of total investment assets, -0.6 pct compared to the beginning of the year. The real estate investment balance was 206.4 billion yuan, accounting for 4.2%, -0.1 pct compared to the beginning of the year, of which real estate/debt/equity accounted for 79.8%/16.2%/4.0% respectively.
The two core businesses of life insurance and banking support the growth rate of operating profit. 2024Q1 achieved operating profit of 38.7 billion yuan to parent, -3.0% year-on-year. By sector, the life insurance/banking sector provided a positive contribution of 1.5pct/0.5pct to the overall operating profit growth rate, +2.2%/+2.3%, respectively; the technology/property/asset management insurance sector had a negative contribution of -2.2pct/-1.6pct/-1.0pct to the overall operating profit growth rate, -129.1% /- 14.3%/-30.3%, respectively. Among them, the asset management sector was mainly affected by the high base for the same period last year. 2024Q1 reached 91 billion yuan, which is a significant improvement over the previous month.
Investment advice: 2024Q1's debt side exceeded expectations, mainly due to significant improvements in the value ratio of the new business; at the same time, against the backdrop of a recovery in the capital market, the pressure on the investment side of 2024Q1 eased month-on-month, and overall net profit declined slightly under a high base, and the performance was better than expected. Looking ahead, we believe that Ping An continues the “4 channels+3 products” strategy, and structural improvements are expected to continue to improve the value rate of new businesses and support good growth in new business values. We maintain the 2024-2026 EPS forecast of 6.7/7.5/7.9 yuan, and the estimated PEV in 2024 is 0.7 times, corresponding to the target price of 56.6 yuan, maintaining a “strong” rating.
Risk warning: regulatory changes, agent reforms falling short of expectations, declining long-term interest rates, equity market turbulence