Ping An reported 33.5% YoY decline of VNB in 3Q21, translating into 17.8% YoY decrease in 9M21. VNB margin on FYP basis declined by 5ppt YoY to 30.7% in 9M21, or down 4.2ppt YoY in 3Q21, owing to: (1) lower contribution from high- margin critical illness business, and (2) assumption changes at the end of FY20 leading to negative YoY impact on margins. The management revised down the guidance to double-digit YoY decline of VNB in FY21E from previous guidance of positive VNB growth in 2H21E, given a continual decline in agent headcounts (-31% in 9M21) and the challenging market conditions.

Expect VNB momentum to turn around in 2Q22. Ping An Life will start the 2022 Jumpstart pre-sale in early November (vs 2021 pre-sale started in Oct 2020), with campaigns for short-term savings products till Double 12, and then will shift focus to high-margin products in mid-December. The margins of the new jumpstart products are set at largely same as the old ones. Given that the 2022 Jumpstart pre-sale period will be around one month shorter than that of 2021, we expect the pressure on new business momentum is likely to sustain till 1Q22. We believe the low base effect will kick in starting from 2Q22, and the agent headcounts will bottom out around 2Q-3Q22.

Digital agency channel reform well on track. Ping An continued to see positive progress on its pilot projects under the agency reform in 3Q21. The insurer targets to expand the pilot programs to a nationwide implementation before the end FY22.

Exposure to real estate investment. The insurance investment exposure to real estate sector rose to 5.5% in 3Q21 from 4.8% of total investment at end- 1H21, owing to an incremental investment in commercial properties with over 7% rental yields, while the exposure to property stocks and bonds remained largely stable. No major impairment of real estate investment in 3Q21.

Lower VNB forecasts and roll forward TPs to FY22E. We lower our FY21E/FY22E VNB growth forecasts to -18%/+6% YoY and roll over our TPs to FY22E at HK$95.07/RMB78.91 for H/A share. Ping An is trading at 0.5x P/EV FY22E or 0.9x P/BV FY22E. We think the valuation is not demanding and the current share price already factored in the slowdown of life insurance business and a write-down of real estate investments. Maintain BUY.