The results of Lu Jin's stock dividend selection were announced. Ping An and Lu Jin Institute issued a joint announcement on July 3. Ping An chose to receive Lujin's previous special dividend in the form of stock dividends. Ping An's total share share share was increased from 41.40% to 56.82%, and Lujin's financial results will be incorporated into Ping An's consolidated statement. At the level of strategic coordination, Ping An's merger with Lu Jin means that Ping An has greater control over Lu Jin and may promote closer cooperation.
In terms of financial performance, we expect that the consolidated statement may have little impact on Ping An's net worth. We maintain our forecast of RMB7.58/7.99/8.24 for Ping An 2024/2025/2026 EPS, and maintain a target price of RMB70 (A) /HKD69 (H) and a purchase rating based on the SOTP valuation method.
Ping An's shareholding ratio in Lu Jin rose to 56.82%
On March 21, Lujin announced the payment of a special dividend of RMB 10 billion, worth USD2.42/ADS, and also announced a share-based dividend plan. Shareholders can choose to receive the special dividend in cash or choose to receive all dividends in exchange for shares (no part in cash, part in stock).
On June 26 and July 2, respectively, the Lujin Institute completed statistics on how US and Hong Kong shareholders chose to use shares in exchange for interest. Lujin's shareholders Anke Technology and Ping An Overseas Holdings (all owned by Ping An Asset) chose to pay dividends. Ping An's shareholding share of Lujin will increase from 41.40% to 56.82%. Therefore, Ping An will incorporate Lujin's performance into the financial statements. We expect Lujin to maintain relatively independent operations. The special dividend aroused investors' interest. It was announced that Lujin's stock price rose 45.7% on the same day, compounded by signs of improvement in 1Q24. Recently, the stock price showed a fluctuating upward trend.
The impact on Ping An's net assets is not significant
Lujin changed from a joint venture under Ping An's long-term equity investment to a consolidated subsidiary. Ping An needed to reassess the value of Lujin. As of the end of 2023, Lu Jin's book value in Ping An's financial report was RMB 52.8 billion (long-term stock investment, equity law). The exclusion dates and dividend dates for special dividends are in June and August, respectively.
Based on Lujin's profit performance in the first half of the year, we estimate that Lujin's book value at the time of consolidation was approximately RMB 52.5 billion. Assuming that Ping An does not adjust Lujin's assets and liabilities after the merger, we expect 1H24 Lujin's net assets after investment (based on 56.82% share share) to be approximately RMB 52.1 billion, which is not much different from the book value before the revaluation. We expect that the impact of this merger on Ping An's net assets will not be significant. Furthermore, due to choosing shares in exchange for interest, Ping An is required to make a comprehensive offer for all shares offered by Lujin and US ADS. The share offer price is USD1.127/share or USD2.254/ADS.
Life insurance NBV is growing, and the comprehensive cost rate of property insurance is too high
In 1Q24, Ping An recorded EPS of RMB 2.07, a year-on-year decline of 4.6%, mainly due to slightly weaker investment performance than the previous year. Life insurance's new business value (NBV) grew strongly, with a year-on-year increase of 20.7% on a comparable scale, mainly driven by rising profit margins. 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.
Risk warning: NBV has declined sharply, COR has risen sharply, and investment has experienced significant losses.