20220825-招银国际-中国平安-02318.HK-Channel_reform_is_close_to_the_finish_line_8页_1mb

Ping An (2318 HK) Summary

Core Content

Ping An (2318 HK) has reported its first-half 2022 (1H22) results, showing a 4.3% year-over-year (YoY) increase in Operating Profit After Tax (OPAT) to RMB85bn, which aligns with 54% of the FY22E forecast. Despite the headwinds from the pandemic, the company's channel reform is nearing completion, and the company expects Value New Business (VNB) growth to turn positive in 4Q22 or 1Q23.

Main Points

• Channel Reform Progress:

  • Digital agency reform has covered 65% of business outlets by end of 1H22.
  • Early pilots in 2020/2021 showed strong VNB growth of +13% and +20% YoY in 2Q22.
  • Recent pilots in late 2021 and March 2022 also showed positive data points.
  • The reform is expected to extend to the remaining 35% of outlets in 2H22, with VNB momentum expected to turn positive in 4Q22 or 1Q23.

• Real Estate Exposure:

  • Investment exposure to the real estate sector was reduced by 0.3 percentage points (HoH) to 5.2%.
  • 52% of the RMB223bn investment is in rental-generating properties, and less than 10% is in property stocks.
  • No default events were recorded in 1H22, indicating low risk of massive impairment.

• IFRS17 Impact:

  • The implementation of IFRS17 in 2023 may benefit Net Profit After Tax (NPAT) by amortizing reserve catch-up due to interest rate changes instead of recognizing them immediately in the profit and loss statement.
  • Management is confident in maintaining a progressive dividend policy with a strong capital position.

• Valuation:

  • Ping An-H is trading at 0.5x P/EV and 0.8x P/BV for FY22E, which is at a historical low.
  • The company believes the worst is over and that the recovery in new business growth will support share price performance.

Key Financial Highlights

Performance Summary

• Net Profit:

  • Net profit rebounded in 2Q22, with 1H22 profit growth at 4% YoY.
  • This was driven by better investment returns and fair value recovery of Lufax CB.

• VNB:

  • VNB declined 28.5% YoY to RMB19.6bn in 1H22, reaching 66% of the FY22E forecast.
  • The decline in 2Q22 was 17% YoY, narrowing from a 33.7% YoY drop in 1Q22.
  • Agent productivity improved by 27% YoY on a VNB basis, while agent headcount remained stable with a 3% quarterly decrease.

• P&C Insurance:

  • Combined ratio increased by 1.4ppt YoY to 97.3%, in line with the industry average.
  • Underwriting margin was affected by credit guarantee insurance and liability insurance losses.
  • P&C premium growth was slightly above the industry average of 9.4%, driven by auto and A&H growth.

• Banking:

  • Bank profit increased by 26%, driven by non-interest income growth, lower cost-income ratio, and reduced investment impairment.
  • Net Interest Margin (NIM) narrowed by 7bps YoY to 2.76%.
  • Non-Performing Loan (NPL) ratio remained stable at 1.02%, while special mention loan ratio improved by 10bps HoH.
  • Provision coverage ratio increased by 1.6pts.

• Dividend:

  • Ping An declared RMB0.92 interim dividend per share, a 4.5% increase YoY.
  • Dividend payout ratio based on OPAT remained largely stable.

• Solvency:

  • Core solvency margin for the group, life, and P&C segments was 179%, 138%, and 173%, respectively.
  • Under stress tests, solvency margins would remain above 160% for the group and P&C, and above 110% for life.

Share Performance

• Market Cap: HK$328,084.4 million
• Average 3-month total return: HK$48.3 million
• 52-week High/Low: HK$69.30 / HK$42.95
• Total Issued Shares: 7,448.0 million

Shareholding Structure

• Charoen Pokphand Group: 6.8%
• Shenzhen Investment Holdings: 5.3%

Analyst Rating and Target Price

• Rating: BUY (Maintain)
• Target Price: HK$75.55
• Previous Target Price: HK$75.55
• Up/Downside: 71.5%
• Current Price: HK$44.05

Conclusion

Ping An is demonstrating signs of recovery, with channel reform nearing completion and VNB momentum expected to improve in the coming quarters. The company's exposure to real estate remains under control, and the implementation of IFRS17 is anticipated to positively impact NPAT. The current valuation is at a historical low, and the company is optimistic about future share price performance. The management is confident in maintaining a progressive dividend policy, and the company's solvency position remains strong.