Core views

The company performed well on both sides of the company's financial losses in the third quarter. Looking ahead, the company is expected to face a double blow from Davis, where the resonance between performance and valuation improved. In terms of performance, the “increase in quantity and excellent quality” on the debt side of the company is expected to continue. From the “quantitative” perspective, the competitiveness of savings insurance products will continue to be prominent in the post-era of new asset management regulations, providing a solid foundation for maintaining a high level of prosperity on the debt side. From a “quality” perspective, a series of regulatory policies, such as “integration of reporting and banking,” lowering scheduled interest rates, and establishing a mechanism for dynamic adjustment of scheduled interest rates, are expected to drive the company's debt costs to continue to be optimized, and I am optimistic that NBVM will continue to improve. On the asset side, the release and implementation of a series of policy packages since September 24 has significantly boosted market confidence. Stock market performance has improved. Against the backdrop of a low base for the same period last year, I am optimistic that the company's equity investment income will improve and real estate-related investment exposure risks will continue to ease.

occurrences

Ping An of China discloses results for the third quarter of 2024

The company's operating profit for the first three quarters was +5.5% to $113.82 billion, of which the NBV for life insurance and health insurance business was +34.1% to 35.16 billion yuan; revenue from financial insurance services was +4.5%, and the comprehensive cost ratio was -1.5pct to 97.8% yoy; and the annualized net and comprehensive return on investment was -0.2pct, +1.3pct to 3.8% and 5.0%, respectively.

Brief review

1. Overall performance: Life insurance, financial insurance and asset management business driven operating profit growth in the first three quarters +5.5% to $113.82 billion, with life insurance and health insurance/ financial insurance/ bank/ asset management/ financial enabling businesses respectively +3.0%/+39.7%/+0.2%/-46.7%/-83.7%/-83.7% to 82.7 billion yuan/139.0.2 billion/ 23.03 billion/ -2.32 billions/0.37 billion yuan billion yuan. Operating profit attributable to parent for the third quarter was +22.1% to 35.34 billion yuan, of which life insurance and health insurance/financial insurance/banking/asset management/ financial enabling business were +7.8%/-2.8%/-37.2%/-85.2%/-85.2% to 280. 0.4 billion yuan/4.01 billion yuan/8.03 billion yuan/-3.61 billion yuan/0.08 billion yuan, respectively. Net profit attributable to mother for the first three quarters was +36.1% YoY to 119.18 billion yuan, and +151.3% YoY to 44.0.6 billion yuan in the third quarter.

2. Life insurance and health insurance business: A high increase in new orders combined with an improvement in value ratio. NBV grew strongly in the first three quarters, NBV was +34.1% to 35.16 billion yuan, which was used to calculate NBV's first-year premium ratio of -4.2% to 138.62 billion yuan, and NBVM was +7.3 pct to 25.4% year over year. In the third quarter of a single year, NBV was +110.3% to 12.84 billion yuan, which was used to calculate NBV's first-year premium ratio of +50.4% to 46.41 billion yuan. We believe that the change in predetermined interest rates for traditional insurance and dividend insurance in the third quarter led to an accelerated release of demand for residents' savings insurance. Combined with the continuous release of the results of the company's channel reforms, the optimization of per capita production capacity was driven by both supply and demand factors. Both supply and demand factors jointly drove the company's new premium increase in the third quarter. The company's NBVM improvement is expected to benefit mainly from the company's continued promotion of product structure optimization and reduction of scheduled interest rates.

By channel:

On the agent side, the NBV growth rate in the first three quarters and the per capita NBV growth rate both increased further compared to the first half of the year. In the first three quarters, agent channel NBV increased by 31.6% year on year (24H1:10.8%), and NBV per agent increased by 54.7% year on year (24H1:36.0%) year on year. The number of agents increased month-on-month.

By the end of the third quarter, the number of agents was 0.362 million, +4.3% compared to the end of the previous year and +6.5% compared to the end of the second quarter. The company focuses on increasing “excellence” with “excellent”, and the entry of new hires is constantly improving, and the proportion of “excellent +” in the new manpower is +4pct compared to the same period last year.

In terms of banking insurance, the NBV of the banking insurance channel in the first three quarters was +68.5% year-on-year. In terms of banking cooperation, the company strengthened long-term mutual trust and cooperative relationships and continued to deepen Ping An Bank's exclusive agency model; at the same time, it actively consolidated cooperation with major state-owned banks, expanded potential channels such as leading stock banks and urban commercial banks, deepened branch operations to optimize production capacity, comprehensively enhance team specialization capabilities, and strengthen excellent performance. In the first three quarters, the per capita production capacity of external channels was +77%.

3. Financial insurance business: Guaranteed insurance business underwriting losses declined sharply, and the improvement in the comprehensive cost ratio led to a high increase in underwriting profit as measured by “insurance service revenue × (1- comprehensive cost ratio)”. Underwriting profit for the first three quarters was +228% to 5.4 billion yuan, of which insurance service revenue was +4.5% to 246.02 billion yuan, and the original insurance premium income was +5.9% to 239.37 billion yuan, and the comprehensive cost ratio was -1.5pct to 97.8% year over year.

On the revenue side, auto insurance/non-car insurance/eHealth Insurance's original insurance premium income in the first three quarters was +3.8%/+3.5%/+31.7% to 160.54 billion yuan/55.24 billion yuan/23.59 billion yuan, respectively.

On the cost side, Ping An Insurance strengthened business management and risk screening to ensure that underwriting losses in the insurance business fell sharply year on year, and the impact on the company's overall business quality was drastically reduced, leading to an improvement in the overall cost rate. The comprehensive cost rate for car insurance in the first three quarters was +0.8 pct to 98.2% year over year. It was mainly affected by rising debt costs and frequent natural disasters such as typhoons and rainstorms due to falling discount rates under the new insurance contract guidelines, but it continues to be superior to the industry.

4. Asset side: Policies helped the capital market recover. The comprehensive return on investment was +1.3 pct. A series of monetary, fiscal, capital market stabilization and employment promotion policies were introduced one after another in the third quarter. The capital market responded positively, and the stock market rebounded rapidly.

Benefiting from the recovery in the capital market, the net, total, and comprehensive return on investment of the company's insurance capital portfolio in the first three quarters was -0.2 pct and +1.3 pct, respectively, to 3.8% and 5.0% year-on-year.

5. Other business: Asset management business losses narrowed year-on-year, and Lujin's consolidated statement resulted in a large difference between operating profit and net profit. Banking business: In the first three quarters, operating profit attributable to parent was +0.2% to 23.03 billion yuan. In the first three quarters, operating profit attributable to parent was +0.2% to 23.03 billion yuan, and in the third quarter, operating profit attributable to parent was 2.8% to 8.03 billion yuan. In the first three quarters, net interest spread was -0.54 pct year over year to 1.93%. In terms of retail business, by the end of the third quarter, retail customer assets (AUM) were 4148.57 billion yuan, +2.9% compared to the beginning of the year; the number of retail customers was 127.25 million, including 1.424 million wealth customers, +3.4% from the beginning of the year; and personal deposit balances were 1270.97 billion yuan, +5.2% compared to the beginning of the year. In terms of asset quality, by the end of the third quarter, Ping An Bank's non-performing loan ratio was 1.06%, the same as at the beginning of the year; provision coverage rate was 251.19%.

Asset management business: In the first three quarters, the asset management business's operating profit was -46.7% to -2.32 billion yuan. In the third quarter, operating profit attributable to parent was -37.2% to -3.61 billion yuan, and the loss margin narrowed year-on-year.

Financial Empowerment Business: In the first three quarters, the operating profit of the financial enablement business was -83.7% to 0.37 billion yuan, and net profit to mother was +475.0% year-on-year to 13.31 billion yuan; in the third quarter, operating profit to mother was -85.2% to 0.08 billion yuan, and net profit to mother was +2363.0% to 12.83 billion yuan. The main reason for the large difference in performance between net profit attributable to mother and operating profit due to operating profit excluding major one-time items that management believes are not part of the daily operating income and expenditure, including one-time profit and loss arising from the inclusion of Lujin Holdings in the scope of the company's consolidated statements and the total revaluation profit and loss of 12.936 billion yuan of convertible promissory notes held by the company based on Lujin's holdings, and the weighted impact of dollar convertible bonds issued by the company - -5.802 billion yuan. Among them, the inclusion of Lujin Holdings in the scope of the company's consolidated statements had a one-time profit and loss impact of 12.755 billion yuan.

Investment advice: The debt-side's “quantitative increase and excellent quality” is expected to continue. The company is expected to see a resounding improvement in performance and valuation, and the debt-side “excellent quantity increase and quality” is expected to continue. From a “quantitative” perspective, savings insurance products are one of the few financial products that can provide determined returns in the post-era of new asset management regulations. The product competitiveness is prominent, and it is expected that it will continue to take on the steady investment needs of residents, providing a solid foundation for maintaining a high level of prosperity on the debt side. From a “quality” perspective, a series of regulatory policies, such as “integration of reporting and banking,” lowering scheduled interest rates, and establishing a mechanism for dynamic adjustment of scheduled interest rates, are expected to drive the company's debt costs to continue to be optimized, and I am optimistic that NBVM will continue to improve. On the asset side, the release and implementation of a series of policy packages since September 24 has significantly boosted market confidence. Stock market performance has improved. Against the backdrop of a low base for the same period last year, I am optimistic that the company's equity investment income will improve and real estate-related investment exposure risks will continue to ease. In the long run, the company's efforts to increase the share of dividend insurance sales and create a more balanced product structure are expected to further consolidate the company's long-term steady operation capacity in a low interest rate environment, thereby opening up space for the company's long-term valuation center. Based on the above analysis, we raised the company's profit forecast and target price. We expect the company's NBV growth rate in 2024/2025/2026 to be 37.8%/17.3% /15.9%, respectively, giving the company a target price of 69.3 yuan for the next 6 months, corresponding to a PEV of 0.8 times in 2024, maintaining a “buy” rating.

Risk warning:

Debt-side reforms fall short of expectations: Currently, the company's life insurance business continues to deepen its transformation. If the quality of the company's agent team falls short of expectations, it may affect the company's new business value.