The Chinese insurance giant seems to be in great shape

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The Chinese insurance giant seems to be in great shape

Ping An Insurance [HKG:2318] is one of the three largest integrated financial groups in China. Integrated finance and health are the core businesses of this insurance mammoth. Ping An in Chinese means safe and sound, which matches their conservative approach to the industry. But can they stay as safe and sound under China’s strict zero Covid policy?

Ping An: the largest insurance group in the world

China Ping An Insurance (Group) Co., Ltd. was born in Shenzhen in 1988. Ping An is a personal financial services group with arguably the most comprehensive suite of financial licenses and widest range of business in China. At present, the group’s total assets have exceeded 10 trillion yuan, making it the world’s largest insurance group by assets.

There are 21 LLCs under the Ping An umbrella, including insurance, banking, real estate, securities, healthcare, electronic financial services, fintech, overseas investment and management of assets. The group provides services to more than 225 million in-person users and 668 million online users.

As we can see, Ping An manages quite a diverse portfolio in terms of services provided. The ecosystem created by Ping An is extremely valuable in terms of generating and retaining customers.

I’ve gathered first-hand feedback from customers who have experienced Ping An’s service and talked about an integrated system that helps them access their services smoothly. With a single account, you can access all the services provided by Ping An. For example, if you are a customer of Ping An Bank, you can directly access the equity department in the banking application. If you want a loan, just upload your personal documents to the loan department and the fund will be transferred to your Ping An bank account, as they have your credit history and savings activity. They also give advice on new products like health care, online doctors, etc.

According to the president Ma Mingzhe“We are striving to create the ‘One Ping An’ ecological map of ‘comprehensive finance + medicine and health’, and realize ‘one customer, one account, one-stop service’.

Experienced management team

As befits the 14th largest company by market capitalization in China, the entire management team has extensive experience in the relevant industries. But it is worth paying attention to the pedigree of the people in the most important leadership positions at Ping An.

The founder and current chairman, Ma Mingzhe was deputy director of China Merchants Shekou Industrial Zone Social Insurance Company. Ma was fully involved in the operations and management of Ping An until June 2020, when he ceased to act as CEO.

Chairman of the Supervisory Committee Sun Jianyi is over 30 years old in Ping An. Before joining Pin An, Sun was the head of the People’s Bank of China Wuhan branch, deputy general manager of the Wuhan branch of the People’s Bank of China. Insurance Company of China and General Manager of Wuhan Securities Company.

Ping An chairman and co-CEO Xie Yonglin previously served as deputy general manager of sub-branches of Ping An Property & Casualty, and served as deputy general manager and then general manager of Ping An Life branches.

Sustained growth in life insurance and banking

With such a dominant position in the Chinese market, some investors will wonder if it is possible for Ping An to continue to deliver satisfactory growth.

In the first half of 2022, Ping An achieved an operating profit of 85 trillion yuan, equivalent to a year-on-year growth rate of 4.3%. The annual return on equity reached 20.4%, the interim dividend was 0.92 yuan/share, an annual growth of 4.5% with five years of positive growth rate.

Life insurance recorded 17.4% year-on-year growth in operating profit, banking sector recorded an 8.7% growth rate in operating profit and property insurance recorded a 10.1% year-on-year growth rate on revenue. Things look optimistic for Ping An, but also take into account that total revenue in the first half of 2022 compared to the first half of 2021 decreased by 3.6%, which could have something to do with a drop of nearly 30% of new contracts in the health and life insurance sector. Still, profits increased from CNY 67 billion in the first half of 2021 to CNY 71 billion in the first half of 2022.

Financial health in Ping An

Currently, Ping An holds 1.63 trillion yuan in debt and 1.92 trillion yuan in cash and cash equivalents. In addition, Ping An has operating cash of 393 billion yuan which covers 24% of debt. The high interest payment charged on the intermediate term debt of CNY 17 billion is also covered by an EBIT of CNY 163 billion (9x hedge).

Ping An holds CNY 2.27 trillion in current liabilities and CNY 2.76 trillion in current assets. Ping An’s debt-to-equity ratio has risen from 159.2% to 146.1% over the past five years.

Ping An stock looks undervalued

Ping An is trading at 40.9 HKD at the time of writing, which is more on the lower end of the 52-week range (37 HKD 52-week low for the stock). It trades at a P/E ratio of 6.38 versus the industry of 11.4x. average (which represents excellent value), a P/B ratio of 0.78, a dividend yield of 7.01% and with 25 analysts with a 1-year average price target of 67.23 HKD; if this price is reached, it is a profit of 64.4%.

Ping An has paid a stable dividend over the past 10 years (including during Covid), with five years of positive dividend growth rate, stars in the management team, low P/E ratio, financial statements sound, trading at the low end of the 52 week range. Sounds like a great bet on the Chinese financial services sector.

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