Results for the first three quarters of 2024 were generally better than our expectations

Ping An of China announced 3Q24 results: net profit for the first three quarters of 2024 was 119.18 billion yuan, better than our expectations of 2%, mainly due to our previous forecast not taking into account the impact of Lujin's merger, the new business value (NBV) of comparable caliber life insurance (NBV) was +34.1% YoY, corresponding to +110.3% YoY for 3Q24; 9M24 Group Operating Profit (OPAT) was +5.5% YoY to 113.82 billion yuan, which was slightly lower than our expectations, mainly due to the asset management and financial empowerment sector being lower than our expectations We expect it.

Development trends

The positive trend on the life insurance debt side is further advanced. 9M24 Ping An's comparable caliber NBV was +34.1% year over year, with individual insurance +31.6% year over year and banking insurance ratio +68.5%; new business value ratio based on first-year premiums was +7.3ppt to 25.4% year over year; 3Q24 Ping An agent's NBV per capita was +54.7% year over year, and agent size increased 6.5% to 0.362 million compared to 1H24. Thanks to past reforms and various regulatory policies, we believe that the current positive trend on the debt side of Ping An Life Insurance is even more obvious, and it is expected that the number of agents will return to a state of continuous moderate growth.

The profitability of industrial insurance underwriting quickly recovered. Thanks to the gradual clarification of the impact of guarantee insurance, the overall CoR of 9M24 production insurance was -1.5ppt to 97.8% year over year, in line with our expectations; 9M24 car insurance CoR was +0.8ppt to 98.2% year over year, and underwriting profitability was still better than the industry.

The return on net investment of insurance funds shows resilience. The yield on 9M24 ten-year treasury bonds fell 52 bps year on year, and Ping An's annualized net return on investment was -0.2ppt to 3.8% year on year. We expect it to remain at the highest level in the industry; boosted by the stock market, 9M24 Ping An annualized comprehensive investment yield was +1.3ppt to 5.0% year over year.

Profits increased, and net assets were negatively affected by short-term rapid changes in interest rates and accounting measures.

9M24 Ping An Group OPAT +5.5% YoY, of which Life Insurance/Financial Insurance/Banking were +3.0%/+39.7%/+0.2%, respectively; the asset management sector was affected by impairment losses of 2.32 billion yuan, a year-on-year loss of 2.03 billion yuan; the Group's net profit was +36.1% YoY, of which life insurance was +35.0% YoY, and Lujin combined to affect the net profit of the financial enablement sector +475% YoY. The net assets of 3Q24 Ping An fell 2.5% compared to 1H24, mainly due to dividends of 16.8 billion yuan and short-term increases in discount rate differences for interest-sensitive assets and liabilities due to the rapid rise in interest rates at the end of the 3rd quarter. We expect the latter impact to be eliminated after interest rates are relatively stable. The company said the current long-term gap is relatively stable.

Walk slowly, then pick up the next level. Taking into account Ping An's past reforms, a recent package of economic policies, and various regulatory measures to promote the high-quality development of the industry, we believe that the biggest challenge in the external environment may have passed. Currently, Ping An may be at the beginning of a new profit growth cycle, and reaffirms its recommendation.

Profit forecasting and valuation

We maintain profit forecasts, industry ratings, and target prices of 65.4 yuan/HK$66.9 for A shares, corresponding to 0.8 x 2024e P/EV for A shares and 0.7 x 2024e P/EV for Hong Kong shares. Currently, Ping An A/H shares are trading at 0.69x and 0.54x 2024e P/EV, respectively, with 15%/36% potential upside for A/H.

risks

The increase in premiums for new orders fell short of expectations; long-term interest rates fell sharply; capital markets fluctuated greatly; and policy and regulatory uncertainty.