KGI: Ping An Insurance (Group) Company of China, Ltd. (2318 HK) – Too big to fail
alanyeo
BUY Entry – 60 Target – 69 Stop Loss – 57
Ping An Insurance (Group) Company of China, Ltd. is a personal financial services provider. The Company provides insurance, banking, investment, and Internet finance products and services. The Company operates its businesses through four segments. The Insurance segment provides life insurance and property insurance, including term, whole-life, endowment, annuity, automobile and health insurance. The Banking segment is engaged in loan and intermediary businesses with corporate customers and retail business. The Assets management segment is engaged in security, trust and other assets management businesses, including investment, brokerage, trading and asset management services. The Internet Financing segment is engaged in the provision of Internet finance products and services.
Nightmare is gone. 2021 is the third worst year for the China insurance giant, following the 2008 global financial crisis and 2011 European debt crisis. The main reason for the sharp sell-off is due to the large investment exposure to the property sector which is overleveraged and hammered by regulations. However, authorities have started to ease the tightening measures on the property sector by the end of 2021. Entering 2022, China has adopted a counter-cycle monetary policy by further lowering key rates, which is totally opposite to the western countries’ rate hike cycle. With the property sector, especially the market leaders’ survival, Ping An’s investment will recover gradually.
Ping An was experiencing the HSBC moment. Investors should focus on the core business fundamentals of Ping An. Similar to HSBC whose shares were hammered during the China-US trade tensions, Ping An’s shares once plunged to below book value, which has never happened since its listing. Negative sentiment pushed prices down to oversold levels.
Core business slowed down in 2021 but saw a turnaround in December. The gross premium income in 2021 dropped by 4.64% YoY to RMB760.3bn. However, the December gross premium income beat expectations and grew by 1.63% YoY and 38.3% MoM.
Updated market consensus of the estimated net profit growth in FY22/23 is 25.9%/12.6% respectively, which translates to 6.3x/2.6x forward PE. The current PE is 7.3x. The FY22/23 dividend yield is expected to be 4.8%/5.3% respectively. Bloomberg consensus average 12-month target price is HK$79.95.
