Ping An Insurance [HKG:2318] is one of the three largest integrated financial groups in China. Integrated Finance and Healthcare are the core businesses of this insurance mammoth. Ping An in Chinese means safe and sound, which matches their conservative approach in the sector. But can they remain as safe and sound under the strict zero Covid policy in China?
Ping An: The world’s biggest insurance group
China Ping An Insurance (Group) Co., Ltd. was born in Shenzhen in 1988. Ping An is a personal financial service group with arguably the most complete suite of financial licenses and the widest scope of business in China. At present, the group’s total assets have exceeded 10 trillion yuan, making it the largest insurance group in the world in terms of assets.
There are 21 LLCs under the Ping An umbrella, including insurance, banking, real estate, securities, healthcare, e-financial service, fintech, overseas investment and asset management. The group provides service to more than 225 million users in person and 668 million users online.
As we can see, Ping An runs quite a diverse portfolio in terms of service provided. The ecosystem Ping An has created is extremely valuable in terms of customer generation and retention.
I have gathered first hand feedback from customers who have experienced Ping An’s service, and who have spoken of an integrated system that helps them to access their services in a smooth way. With only one account, you can link to all the services Ping An provides. For example, if you are a client of the Ping An bank, you can directly access the equity department in the banking app. If you want a loan, simply upload your personal documents to the loan department and the fund will be transferred into your Ping An bank account, because they have your credit history and your savings activity. They also advise on new products like health care, online doctors etc.
According to Chairman Ma Mingzhe: “We strive to create the “One Ping An” ecological map of “comprehensive finance + medical and health”, and realise “one customer, one account, one-stop service”.’
Experienced leadership team
As befits the 14th biggest company by market cap in China, all of the management team have extensive experience in relevant industriess. But it is worth paying attention to the pedigree of the individuals in the most important leadership positions at Ping An.
The founder and the current Chairman, Ma Mingzhe was the Deputy Manager of the China Merchants Shekou Industrial Zone Social Insurance Company. Ma has been fully involved in the operations and management of Ping An until June 2020 when he ceased to act as the CEO.
The chairman of the Supervisory Committee, Sun Jianyi, has 30+ years in Ping An, Prior to joining Pin An, Sun was the head of the Wuhan branch of the People’s Bank of China, the Deputy General Manager of the Wuhan Branch of the People’s Insurance Company of China and the General Manager of Wuhan Securities Company.
Ping An’s President and Co-CEO, Xie Yonglin, previously served as the Deputy General Manager of Ping An Property & Casualty’s sub-branches, and was the Deputy General Manager and then the General Manager of Ping An Life’s branches.
Steady growth rate for life insurance and banking
With such a dominant position within the Chinese market, some investors will be wondering whether it is possible to Ping An to continue to deliver satisfactory growth.
In the first half of 2022, Ping An had an operating profit of CNY 85 trillion, which equated to a YoY growth rate of 4.3%. The yearly return on equity reached 20.4%, the interim dividend was 0.92 yuan/share, which was YoY growth of 4.5% with five years of positive growth rate.
Life insurance had a 17.4% YoY growth on operating profit, the banking sector had an 8.7% growth rate on operating profit, and property insurance reported a YoY growth rate of 10.1% on revenue. Things are looking bullish for Ping An, but also take into consideration that the total revenue of first half 2022 compared to the first half 2021 has decreased 3.6%, which might have a link with a nearly 30% decrease in new contracts in the health and life insurance sector. Yet, the profits increased form CNY 67 billion in the first half of 2021 to CNY 71 billion first half 2022.
Financial health at Ping An
Currently Ping An is holding CNY 1.63 trillion in debt, and CNY 1.92 trillion cash and equivalent. Also, Ping An has CNY 393 billion operating cash which covers 24% of the debt. The high interest payment charged on interim term debt of CNY 17 billion of is also covered by an EBIT of CNY 163 billion (9x coverage).
Ping An holds CNY 2.27 in trillion short term liabilities, and CNY 2.76 trillion in short term assets. Ping An’s debt to equity ratio has reduced from 159.2% to 146.1% over the past five years.
Ping An stock is looking undervalued
Ping An is trading at HKD 40.9 at time of writing, which is more towards the lower end of the 52 week range (HKD 37 52-week low for the stock. It is trading at 6.38 P/E ratio compared to the 11.4x industry average (which represents excellent value), a 0.78 P/B ratio, 7.01% dividend yield, and with 25 analysts with average 1 year price target of 67.23 HKD; if this price is hit, it is a 64.4% profit.
Ping An has paid out a stable dividend for last 10 years (including during Covid), with five years of positive dividend growth rate, stars in the management team, a low P/E ratio, healthy financial statement, trading in the lower end in 52 week range. This looks like an excellent bet on the Chinese financial services sector.