Ping An Insurance - Integrated Finance ecosystem to gauge long-term growth
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Ping An’s Investor Day 2023
Ping An held its Investor Day on 6 Nov 2023, shedding light on its Integrated Finance ecosystem – which paves its way to become the world’s leading financial service provider and helped Ping An achieve a high teens operating ROE, which is nearly twice that of listed insurers (Fig 1). Following are our takeaways from the insurer’s Investor Day:
- Synergies between business lines
Integrated Finance model has generated substantial synergies between Ping An’s business lines, including life insurance, P&C insurance, banking, securities, etc. Here are multiple key numbers that can justify its contribution:
1) The revenue contribution generated by the Integrated Finance ecosystem to business lines being equivalent to no.4 in annuity, no.3 in health insurance, no.8 in P&C, no.15 in bank’s AUM, and no.1 in insurance trust in the respective sectors;
2) Integrated Financial ecosystem having a lower distribution cost than external channels, e.g. Integrated Finance ecosystem costing only 73% in PAB compared to external channels, 55% in PA Health Insurance and 53% in PA Securities;
3) improving customer retention rate, with >4 contracts being 97%+ in 2022, 22% higher than customers with 1 contract; and
4) also enhancing profit per customer, five-year customers generating 1.7x profit per customer than that of one-year customers.
- Key metrics to measure operational efficiency and long-term targets
Management proposed three key metrics to measure the operational efficiency of the Integrated Finance ecosystem, including the number of retail customers, contracts per customer, and profit per customer. In the past eight years (since 2015), the Integrated Finance ecosystem has driven retail customers to double from 109m to 227m, contracts per customer reaching 1.5x from 2.03 contracts per customer to 2.97, and profit per customer also doubling from Rmb289 per customer to Rmb585.
Management also guided long-term target – to achieve double-digit retail OPAT growth by growing retail customer number by 76% to 400m, raising contracts per customer by 68% to 5+ contracts per customer, and increasing profit per customer by 37% to Rmb800 per customer.
- Our views
We believe 1) the Integrated Finance ecosystem is an asset for Ping An Group, as it provides a clear growth path by gauging customer needs for full range of financial services over the life stage, especially for affluent and middle-class customers (Fig 2). It also enhances the operational model by cross-selling, customer retention, and profit generation to maximize the customer value; 2) based on management guidance and our estimations, Ping An is likely to double or even triple its OPAT by successfully delivering its long-term target of the key metrics over the next eight years. Please find our assumptions and estimations in Figure 3.
Our first forecast under IFRS9/17
Ping An has already released its 3Q23 results under the new accounting rules IFRS 9 and IFRS 17 (Fig 4). Due to the impact on the Asset Management segment, the insurer’s net profit declined 5.6% y-o-y to Rmb87.6b in 9M23, missing expectations. However, value of new business (VNB) saw a structural recovery, rising by 40.9% y-o-y to Rmb33.6b in 9M23 on a like-for-like basis (VNB calculated in the same actuarial assumptions).
We are publishing our forecasts for the first time based on the IFRS9/17 standard. We expect a net profit of Rmb115b for FY23F, with y-o-y growth of 17%/12% y-o-y for FY24F/25F, respectively. The steady growth of the insurance service results is expected to be offset by weak results in the Asset Management segment in FY23F and we expect it to return to normal in FY24F/25F. We slightly revise up our VNB forecast for FY23F/FY24F by 6%/5%, respectively, to reflect 1) better-than-expected results of the life agent reform, 2) strong agent productivity improvement, 3) but partially offset by stricter regulatory restrictions to cool down insurance sales in 2H23 and onward. The VNB for 2023/24/25 is expected to be Rmb36.8bn/39.1bn/42.9bn, respectively.
By factoring in 1) weak results in the Asset Management segment, 2) VNB slowdown to single-digit growth in FY24F, 3) resilient results in P&C and banking segment, 4) along with rolling over valuation base to FY24F, we cut the valuation multiple for the Life segment from 1.0x to 0.9x based on FY24F P/EV and Asset Management segment from 0.6x to 0.4x based on FY24F P/B, and maintain multiple for P&C (0.8 FY24F P/B) and PAB (0.6x FY24F P/BV). We cut TP from HK$72 to HK$66 and maintain a BUY rating as Ping An is likely to lead peers in the VNB growth cycle. (Fig 5).
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1. | DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have a proprietary position in Ping An Insurance Group Co of China Ltd (2318 HK) recommended in this report as of 03 Nov 2023. |
2. | Compensation for investment banking services:
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3. | Disclosure of previous investment recommendation produced: |
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