Equity Research Report

Ping An Insurance (2318 HK)

Life insurance reform ongoing

Huatai Research Company Update Rating (Maintain): BUY

4 August 2021 │ China (Hong Kong) Financials/Insurance Target price (HKD): 110.00
Analyst LI Jian, PhD
Tough sales momentum; cut TP by 8.3% SAC No. S0570521010001 lijian@htsc.com
SFC No. AWF297 00852-36586112
The pullback in Ping An’s share prices ytd in its A/H shares reflects investor concerns
about its sluggish new sales of life insurance, effectiveness of life insurance reform, Analyst YANG Ye
and exposure to the recent flood catastrophe in Henan province, in our view. We share SAC No. S0570521060002 yettayang@htsc.com
concerns that reform is no easy task and observable achievements may be sparse in SFC No. BJW349 00852-36586234
the short term. But with management’s solid determination and record of strong
execution, we think Ping An is the likeliest among Chinese insurers to accomplish View Huatai Research
the transition to a quality oriented business model. We cut our 2021 NBV growth
forecast by 10.7pp to -1.4% yoy to reflect weak sales ytd. We expect EPS of
RMB9.11/10.49/12.14 in 2021-2023. The stock trades at 0.71x 2021E PEV. We
lower our DCF-based target price from HKD120 to HKD110. Maintain BUY.

Value creation under pressure

Owing to the low base and the company’s active stance in its 2021 new year sales
campaign, it registered strong NBV growth of 15% yoy in 1Q21. However, new sales
growth was heavily hit (c. -25% yoy) in 2Q21, likely in our view due to falling agent
numbers and sluggish critical-illness product sales after the launch of new regulatory Key data
rules for the business line. With profitable health products contributing less to the Target price (HKD) 110.00
product mix, we think the overall NBV margin should also be diluted, which combined Closing price (HKD as of 3 Aug) 69.15
Potential upside -/+ (%) 59
with sluggish new sales should exert pressure on value creation. The company still
Mkt cap (HKDmn) 1,264,079
targets positive NBV growth for full-year 2021, but this should be challenging in our
6m avg daily val (HKDmn) 2,806
view. We cut our NBV growth forecasts to -7.5%/-1.4% for 1H21/2021. 52wk price range (HKD) 64.50-103.60
BVPS (RMB) 42.24
Life insurance reform continuing
Management noted that reform is progressing as planned, mainly focusing on
Share performance
distribution channels, products, and value added service. For distribution
channels, building superior agent sales teams (that are “5-star outlets with strong Ping An
performance, high quality, and good behavior”) has been emphasized. The (HKD) Rel. to HSI (rhs) (%)
practice is to be carried out in developed provinces this year and spread 102 5

nationwide in 2022. The company is also embedding more value-added services in 93 3

products. However, the market is skeptical about the reform because of the weak 83 1
sales. We think the company needs more time to finish the transition of its agent 74 (1)
team, before which it is hard to see a significant new sales turnaround. 64 (3)
Aug-20 Dec-20 Apr-21 Aug-21
Valuation attractive
Source: S&P
We expect EPS of RMB9.11/10.49/12.14 for 2021-2023. We expect -1.4% yoy
NBV growth in 2021. We lower our DCF-based target price by 8.3% to HKD110 to
reflect our expectation of weaker NBV growth. Maintain BUY.

Risks: Ping An missing our NBV growth target, significant investment losses, and
underwriting losses for P&C businesses.
Financials
YE 31 Dec 2019 2020 2021E 2022E 2023E
Gross written premiums (RMBmn) 795,064 797,880 765,245 798,068 842,162
+/-% 10.49 0.35 (4.09) 4.29 5.53
Total investment income (RMBmn) 202,517 227,265 263,346 299,668 335,786
+/-% 69.37 12.22 15.88 13.79 12.05
Net profit to shareholders (RMBmn) 149,407 143,099 166,604 191,737 221,944
+/-% 39.11 (4.22) 16.43 15.09 15.75
EPS (RMB) 8.41 8.10 9.11 10.49 12.14
DPS (RMB) 2.05 2.20 2.61 2.97 3.42
PB (x) 2.24 1.92 1.17 1.02 0.89
PE (x) 9.80 9.89 6.21 5.40 4.66
PEV (x) 1.25 1.10 0.71 0.65 0.59
Dividend yield (%) 2.49 2.75 4.07 4.64 5.33
Source: Company announcements, Huatai Research estimates

This report must be read with important disclosures and analyst certifications located on the end of the report. 1
Ping An Insurance (2318 HK)

Fig.1: Ping An: trailing PEV

(x)
Ping An (H) Ping An (A)
1.4
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
Jun-2020 Sep-2020 Dec-2020 Mar-2021 Jun-2021
Source: Bloomberg, company data, Huatai Research estimates

Fig.1: Ping An: forecast changes

Old New Changes (%)
2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E
EPS (RMB) 9.96 11.57 13.24 9.11 10.49 12.14 (8.5) (9.3) (8.3)
DPS (RMB) 2.73 3.17 3.61 2.61 2.97 3.42 (4.4) (6.1) (5.4)
EPS growth (%) 22.91 16.19 14.44 12.52 15.09 15.75 (10.4pp) (1.1pp) 1.3pp
ROE (%) 22.10 22.17 21.97 20.25 20.21 20.33 (1.8pp) (2.0pp) (1.6pp)
ROEV (%) 15.15 15.37 15.78 14.57 14.56 14.75 (0.6pp) (0.8pp) (1.0pp)
Life GWP growth (%) (0.32) 4.91 7.24 (2.63) 2.07 3.64 (2.3pp) (2.8pp) (3.6pp)
FYP growth (%) 11.63 14.39 14.42 2.97 10.42 10.55 (8.7pp) (4.0pp) (3.9pp)
NBV growth (%) 9.33 14.91 16.86 (1.38) 7.14 10.11 (10.7pp) (7.8pp) (6.7pp)
P&C GWP growth (%) (6.65) 8.44 8.83 (6.65) 8.44 8.83 0.0pp 0.0pp 0.0pp
P&C COR (%) 99.06 97.75 97.21 98.91 98.12 97.62 (0.2pp) 0.4pp 0.4pp
Note: gross written premium (GWP); first-year premium (FYP); combined ratio (COR).
Source: Huatai Research estimates

Fig.2: Ping An: EPS and yoy growth Fig.3: Ping An: DPS and yoy growth
(RMB) (yoy%) (RMB) (yoy%)
EPS EPS growth (rhs) DPS DPS growth (rhs)
12 60 3.6 120
10 50
3.0 100
8 40
6 30
2.4 80
4 20
2 10 1.8 60
0 0
1.2 40
(2) (10)
(4) (20)
0.6 20
(6) (30)
(8) (40) 0.0 0
2016 2017 2018 2019 2020 2021E 2022E 2016 2017 2018 2019 2020 2021E 2022E
Source: company data, Huatai Research estimates Source: company data, Huatai Research estimates

This report must be read with important disclosures and analyst certifications located on the end of the report. 2
 Ping An Insurance (2318 HK)

Fig.4: Ping An: ROE vs ROEV

(%)
ROE ROEV
35

x 0.01
30

25

20

15

10

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E

Source: company data, Huatai Research estimates

Fig.5: Ping An: NBV and yoy growth Fig.6: Ping An: FYP and yoy growth
(RMBbn) (yoy%) (RMBbn) (yoy%)
NBV NBV growth FYP FYP growth (rhs)
80 80 250 50
x 1000

x 0.01
x 1000

60 60 200 40

40 40 150 30

20 20 100 20

0 0 50 10

(20) (20) 0 0

(40) (40) (50) (10)

(60) (60) (100) (20)

2010 2012 2014 2016 2018 2020 2022E 2010 2012 2014 2016 2018 2020 2022E
Source: company data, Huatai Research estimates Source: company data, Huatai Research estimates

Fig.7: Ping An: NBV margin (FYP-based)

(%)
50
45
40
35
30
25
20
15
10
5
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E

Source: company data, Huatai Research estimates

This report must be read with important disclosures and analyst certifications located on the end of the report. 3
Ping An Insurance (2318 HK)

Fig.8: Ping An: dividend yield

(%)
Ping An (H) Ping An (A)
5.0

4.5

4.0

3.5

3.0

2.5

2.0
2019 2020 2021

Source: Bloomberg, company data, Huatai Research

Fig.9: Ping An: COR

(%)
Loss ratio Expense ratio
120

100

80 32 31
36 37 39 39
38 36 38 39 42 40 41

60

40
67 67
55 58 59 60 58 57 54 57 55 57 61
20

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E

Source: company data, Huatai Research

This report must be read with important disclosures and analyst certifications located on the end of the report. 4
Ping An Insurance (2318 HK)

Valuation methodology and risks statement

We use an SOTP approach to value Ping An and our valuation is based on both accounting and
embedded value metrics. For each business segment, we use a three-stage DCF approach to
evaluate its value.

1) Stage one: three years with explicit forecasts from our model.
2) Stage two: the next 10 years as a defensive period. We assume ROE or ROEV and capital
growth.
3) Stage three: the next 37 years as a long-term period. We assume fading ROE and ROEV. We
do not forecast enterprise value after 50 years in our model.

We discount the cash flows from the three stages at relevant costs of capital to the end of the
current year. We add terminal valuation and dividend. We derive valuations under both embedded
value method and book value method. We derive cost of capital using a capital asset pricing model
(CAPM) approach based on a 3.0% risk-free rate assumption, 1.6x beta, and a 650bp equity risk
premium. Our target price of HKD110 is based on the average of our embedded value method
(HKD110) and book value method (HKD110) valuations.

Fig.10: Ping An: key assumptions

Capital returns in 50 years
Capital cost Stage 1 Stage 2 Stage 3
(%) 2022E 2023E 2024E 2025E 2034E 2071E
Embedded value method
Life 13.5 15.8 16.0 17.0 18.0 14.0 10.0
P&C 11.9 23.0 23.4 24.0 25.0 13.0 10.0
Bank 13.2 Operating 8.9 9.2 9.0 9.0 9.0 10.0
AM 13.5 ROEV 10.5 10.5 12.0 13.0 13.0 10.0
Tech 15.1 13.0 12.5 12.0 13.0 13.0 10.0
Group 13.3 14.6 14.7 17.0 18.0 13.0 10.0
Book value method
Life 13.5 38.8 39.5 40.0 42.0 18.0 10.0
P&C 11.9 23.0 23.4 24.0 25.0 13.0 10.0
Bank 13.2 Operating 8.9 9.2 9.0 9.0 9.0 10.0
AM 13.5 ROE 10.5 10.5 12.0 13.0 13.0 10.0
Tech 15.1 13.0 12.5 12.0 13.0 13.0 10.0
Group 13.3 22.1 22.1 23.0 24.0 15.0 10.0
Source: Huatai Research estimates

Risks
Failure of reform, significant investment losses, and loss of premium growth momentum.

Fig.11: Ping An Insurance PE-Bands Fig.12: Ping An Insurance PB-Bands

(HKD) Ping An 5x 10x (HKD) Ping An 1.3x 1.7x
15x 20x 25x 2.0x 2.4x 2.7x
250 150

188 113

125 75

63 38

0 0
Aug 18 Feb 19 Aug 19 Feb 20 Aug 20 Feb 21 Aug 18 Feb 19 Aug 19 Feb 20 Aug 20 Feb 21

Source: S&P, Huatai Research Source: S&P, Huatai Research

This report must be read with important disclosures and analyst certifications located on the end of the report. 5
Ping An Insurance (2318 HK)

Full financials
Income statement Balance sheet
YE 31 Dec (RMBbn) 2019 2020 2021E 2022E 2023E YE 31 Dec (RMBbn) 2019 2020 2021E 2022E 2023E
Gross written premiums 795 798 765 798 842 Assets
Premium ceded (21) (23) (22) (24) (25) Cash and deposits 768 880 967 1,060 1,158
Change in unearned premium (25) (17) 3 (10) (11) Bonds securities 5,456 6,392 7,139 7,807 8,513
reserves
Net premiums earned 749 758 746 764 805 Equity securities 1,226 1,442 1,484 1,660 1,851
Total investment income 203 227 263 300 336 Other investment assets 270 298 333 371 412
Other income 195 217 207 228 254 Total investment assets 7,720 9,013 9,922 10,898 11,934
Total revenue 1,146 1,202 1,216 1,292 1,395 Other assets 503 515 572 633 699
Insurance benefits & claims expenses (578) (615) (639) (665) (704) Total assets 8,223 9,528 10,494 11,531 12,633
Costs & other expenses (406) (416) (389) (410) (440) Liabilities
Total benefits, claims & expenses (985) (1,031) (1,028) (1,075) (1,144) Insurance contracts liabilities 1,964 2,267 2,572 2,900 3,241
Share of profit of associates 23 17 28 31 35 Investment contracts liabilities 706 773 853 942 1,039
Profit before income tax 185 188 216 248 286 Interest-bearing payables 4,132 4,832 5,202 5,591 5,995
Income tax (20) (28) (35) (40) (46) Other liabilities 569 668 744 824 910
Net profit 164 159 182 208 240 Total liabilities 7,371 8,540 9,371 10,257 11,184
Net profit to shareholders 149 143 167 192 222 Equity
Non-controlling interests 15 16 15 17 18 Share capital 18 18 18 18 18
Reserves 660 750 871 1,003 1,156
Other (5) (6) (6) (6) (6)
Valuation & profitability Shareholder's equity 673 763 883 1,015 1,168
YE 31 Dec (%) 2019 2020 2021E 2022E 2023E Minority interests 179 225 240 258 280
PE (x) 9.80 9.89 6.21 5.40 4.66 Total equity 852 988 1,123 1,273 1,448
PEV (x) 1.25 1.10 0.71 0.65 0.59
PB (x) 2.24 1.92 1.17 1.02 0.89
PTNAV (x) 2.47 2.10 1.27 1.09 0.94
ROE 24.30 19.93 20.25 20.21 20.33
ROA 1.94 1.61 1.66 1.74 1.84
Dividend yield 2.49 2.75 4.07 4.64 5.33 Growth & profitability
Dividend payout 24.38 27.16 28.65 28.34 28.15 YE 31 Dec (%) 2019 2020 2021E 2022E 2023E
Gross written premiums 10.49 0.35 (4.09) 4.29 5.53
Index per share (RMB) Total investment income 69.37 12.22 15.88 13.79 12.05
YE 31 Dec 2019 2020 2021E 2022E 2023E Net profit to shareholders 39.11 (4.22) 16.43 15.09 15.75
EPS 8.41 8.10 9.11 10.49 12.14 EPS 39.70 (3.69) 12.52 15.09 15.75
DPS 2.05 2.20 2.61 2.97 3.42 Total assets 15.12 15.87 10.14 9.88 9.55
BVPS 36.82 41.71 48.29 55.53 63.91 Shareholders equity 20.96 13.28 15.77 14.98 15.10
TNAVPS 33.36 38.20 44.63 51.72 59.95 New business value 5.05 (34.72) (1.38) 7.14 10.11
EVPS 65.67 72.65 79.84 87.57 96.02 Group embedded value 19.76 10.63 9.89 9.68 9.66

Source: Company announcements, Huatai Research estimates

This report must be read with important disclosures and analyst certifications located on the end of the report. 6
Ping An Insurance (2318 HK)

Disclaimers
Analyst Certification
I/We, LI Jian, YANG Ye, hereby certify that the views expressed in this report accurately reflect the personal views of the
analyst(s) about the subject securities or issuers; and no part of the compensation of the analyst(s) was, is, or will be, directly or
indirectly, related to the inclusion of specific recommendations or views in this report.

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The opinions, assessments and projections contained herein only reflect the views and judgments at the issuance date. Huatai
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Ping An Insurance (2318 HK)

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Ping An Insurance (2318 HK)

Guide to Investment Rating

The investment rating system is based on total return potential including all paid or anticipated dividends relative to that of the
benchmark over the next 6-12 months after the release of the report.
The benchmark: CSI-300 Index for A share market. Hang Seng index for Hong Kong market. S&P 500 index for US market.

Industry Rating Definitions

OVERWEIGHT: The industry index is expected to outperform the benchmark
NEUTRAL: Performance of the industry index is expected to be in line with the benchmark
UNDERWEIGHT: The industry index is expected to significantly underperform the benchmark

Stock Rating Definitions

BUY: The stock price is expected to outperform the benchmark by more than 15%
OVERWEIGHT: The stock price is expected to outperform the benchmark by 5%~15%
HOLD: The performance of the stock relative to that of the benchmark is expected to be within -15%~5%
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Rating suspended: The rating, target price and estimates have been suspended temporarily to comply with applicable
regulations and/or firm policies
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This report must be read with important disclosures and analyst certifications located on the end of the report. 9