Incident: Ping An of China disclosed 1H24 performance: the Group achieved operating profit (OPAT) of 78.482 billion yuan, a slight decrease of 0.6% year over year and an annualized operating ROE of 16.4%; realized net profit to mother of 74.619 billion yuan, up 6.8% year on year. The difference with OPAT was mainly short-term investment fluctuations (based on the assumption of long-term return on investment at the end of 2023) of -4.078 billion yuan; the total OPAT of the three core businesses of Bank of Life Insurance reached 79.565 billion yuan, up 1.7% year over year. Specifically, the year-on-year growth rates of the life insurance/industrial insurance/banking/asset management/technology sector were +0.7%, +7.2%, +1.9%, -8.2%, and -83.2%, respectively. Among them, the asset management sector has reversed the quagmire of large losses due to profits held by Lu Jin Institute, which dragged down the technology sector. The company plans to pay an interim dividend of $0.93 per share in cash to shareholders, which is slightly higher than OPAT's growth rate. The performance was in line with expectations.

The NBV continued to grow under a high base, and the CSM balance reversed the decline and stabilized. 1H24 achieved an NBV of 22.32 billion yuan, an increase of 11.0% year over year. In terms of attribution: 1) New NBV orders fell 19.0% year on year, but NBV Margin rose 6.5 to 24.2% year on year, thanks to the continuous deepening of the “4 channels+3 products” strategy and improving business quality; 2.1H24 insurance/banking insurance channel NBV increased 10.8%/17.3% year over year, and the number of insurance agents at the end of 2Q24 increased 36.0% year on year, and the number of insurance agents at the end of 2Q24 was not easy. The revenue of 1H24 agents reached 11,962 yuan/person They are all monthly, close to historically good levels. Banking Insurance's external channel performance and production capacity increased by 87.6% year-on-year, which is superior to the overall market level. The CSM balance for life insurance and health insurance at the end of 1H24 was 774.399 billion yuan, stopping the decline for the first time since the indicator was disclosed. Thanks to the narrowing decline in new business contributions, improved estimate adjustments, and the reduction in CSM amortization, this indicates an improvement in future profit release momentum.

Guarantee insurance is gradually getting out of the quagmire of huge losses. 1H24 Industrial Insurance OPAT increased 7.2% year over year. The reasons are: 1. Underwriting profit increased 15.7% year over year, thanks to the comprehensive cost ratio (COR) falling 0.2 pct to 97.8% year over year and achieving a 3.9% year-on-year increase in insurance service revenue; 2. Total investment income increased 6.7% year over year; 3.1 H24 car insurance/non-vehicle (excluding guarantee insurance) /guarantee insurance COR was 98.1%/95.5%/106.8%, respectively, +1.0/2.1/-10.9pct. The guarantee is like stepping out of the quagmire.

The annualized comprehensive return on investment is close to the level of various actuarial assumptions. The 1H24 insurance fund portfolio achieved an annualized net/total/comprehensive return on investment of 3.3%/3.5%/4.2%, a year-on-year decrease of 0.2/0.1/increase of 0.1 percentage points. The pressure on net investment income is mainly affected by the maturity of existing assets and the decline in the return to maturity of new fixed income assets. The improvement in total/comprehensive investment income was due to significant improvements in securities investment differential income and fair value changes, and the positive contribution of FVOCI assets. The company's FVOCI stock balance at the end of the period increased 17.7% from the beginning of the year to 206.035 billion yuan.

Life and health insurance annualized ROEV reached 15.4%. Group/life insurance and health insurance EVs at the end of the period increased 10.3% and 6.2% from the beginning of the year due to the recovery in NBV, correction of differences in investment returns, market value adjustments for debt bulls improving free surpluses, and differences in operating experience and other contributions. The embedded value per share at the end of the period was 81.06 yuan. Currently, the static PEV of A-share stock prices is only 0.51X, which is at a historically low level.

Profit forecasting and investment ratings: The recovery in new business has led to an overall improvement in value and profit indicators. Maintaining the profit forecast, we expect 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