Key points of investment
Incident: On May 17, 2024, the central bank successively announced 4 real estate deregulation policies at noon. In the afternoon, Vice Governor Tao Ling answered questions from reporters at the State Council policy routine briefing. The main policies include lowering the minimum down payment ratio for first and second home loans, abolishing the lower interest rate limits for first and second home loans at the national level, lowering interest rates on provident fund loans, and establishing 300 billion reloans for affordable housing.
Full scan of Ping An Real Estate's exposure in China. As of the end of 2023, we sorted out the company's real estate exposure performance based on the company's and subsidiary annual reports. According to the division report, the various distributions of housing in Ping An of China were concentrated in the insurance business segment (the real estate investment scale of insurance funds at the end of 2023 accounted for 4.3% of total investment assets, with a balance of 204 billion yuan at the end of the period, mainly property investment, using the cost method, accounting for 78.4% of real estate investment), banking business division (at the end of 2023, Ping An Bank real estate-related real estate-related credit, proprietary bond investments, and proprietary non-standard investments totaled 284.196 billion yuan, a decrease of 394.39 billion yuan compared to the end of the year 100 million yuan), Ping An Trust distribution (the share of proprietary assets and trust assets in the real estate business has declined sharply in recent years. In 2023, Ping An Trust's real estate industry distribution amount fell to 1,836 billion yuan, accounting for 5.78% of proprietary assets; as of March 2024, Ping An Trust Real Estate Trust's assets accounted for only about 1%) and other asset management business divisions (mainly in 2023, affected by the macroeconomic environment, rising credit risk, and capital market fluctuations, putting pressure on some assets. The company actively manages risks, proactively and prudently makes provisions, and revalues some projects, causing the profit of the asset management business to decline. According to our estimates, losses from other asset management businesses in 2022 and 2023 will be at least -4.8 billion yuan and -25.644 billion yuan). Ping An of China does not directly operate the real estate business, but the current real estate deregulation will help narrow the decline in real estate sales and investment. Although improvements in the fundamentals of real estate chain performance will not happen overnight, the asset quality of insurance companies is expected to improve.
Ping An of China is not only a leader in insurance stocks. We believe that as a comprehensive financial group, the company is expected to benefit greatly from this round of real estate deregulation, which will double impact on valuation and performance. The rebound in insurance stocks in this round began with Hong Kong stocks falling sharply and rebounding. Since then, the 1Q24 insurance quarterly report exceeded expectations and the downward rise in long-term interest rates accelerated to confirm the rebound. The current real estate rebound is expected to drive the sector and company valuations to further repair and improve. The continued decline in the fundamentals of the real estate industry in recent years has greatly dragged down the overall valuation of financial stocks. As a comprehensive financial group, Ping An of China, as a bullish option for financial stocks, is expected to fully benefit from the opening up of real estate valuation constraints. Since April 2024, the H share insurance sector has rebounded strongly. Among them, China Taibao H (60.9%) led the rebound, and China Ping An H shares (37.5%) rebounded significantly better than China Ping An A (9.6%). The main reason is that it is difficult for the market to form consistent expectations about the rebound in real estate fundamentals. This real estate loosening is expected to strengthen the consensus on market expectations.
Profit forecasting and investment ratings: Real estate valuation barriers open up, buying bullish options on financial stocks. Maintaining the profit forecast, we expect the company's net profit to be 1204, 1541, and 162.2 billion yuan in 2024-26, with year-on-year growth rates of 40.5%, 28.0% and 5.2%, maintaining a “buy” rating.
Risk warning: Long-term interest rates continue to decline, and the asset management business sector's losses fall short of expectations