Ping-An: we have decided to cut our premium growth forecasts for FY21F
we have conservatively decided to cut our premium growth forecasts for FY21F. In addition, we understand that Ping An’s life insurance division completed its reform design last year for its agent force.
They conducted pilots in nine provinces (which covered about 10% of agents), whereby they completed the designs of four separate modules, and now have the confidence to roll out to all the outlets in these nine provinces (about 40% of agents) and then roll them the pilot nationwide, with a base-case timeline at the end of this year and the worstcase timeline in the middle of next year. In terms of this pilot, agents participating in this pilot saw roughly a 20-30% improvement in the agent productivity versus the control group.
The benefits of this reform would thus be fully felt next year as the rollout is completed, in our view. Furthermore, in terms of its agent growth plans, while it did announce at its FY20 results that it has a target of 1m agents in three years (it had 1.02m agents at the end of 2020), it stresses that this is a three year target and the agent numbers will be maintained at a basically stable level (i.e. there may be some quarters where it could be above 1m and some quarters where it could be below 1m agents).
Changes to our forecasts We cut our FY21-23F EPS forecasts driven by lower premium income and lower investment income estimates (Fig 7). We also cut our FY21F-23F NBV forecasts by 5% to reflect our lower premium growth assumptions. Our FY21F-23F embedded value (EV) estimate falls by 1-2% due to our lower NBV estimates, as well as weaker investment income estimates.
We now forecast 12.7% NBV growth for FY21F (vs. 18.3% previously). We stress that Ping An’s public guidance is still for positive NBV growth in FY21F. We note that unlike some of its listed peers, Ping An now no longer restates historical NBV when it changes its actuarial assumptions. As such, actuarial assumption changes announced at its FY20 results (relating to expenses and
Valuation and Risks We lower our SOP-based TP to HK$125 from HK$131 as we mark to market the listed entities component of our SOP valuation, specifically for banking and fintech/healthtech operations, as well as factor into our life insurance valuation lower estimates for NBV, EV and net profit. We value a number of listed entities based on current share prices in our SOP valuation. We have thus marked to market our SOP valuation to current share prices for Ping An Bank (000001 CH, 73% 74% 0 pts Effective tax rate 15% 15% 0 pts 14% 15% 0 pts 14% 15% 0 pts Dividend payout ratio 27% 27% 0 pts 27% 27% 0 pts 28% 28% 0 pts EPS growth 17% 14% -3 pts 17% 17% 1 pts 15% 16% 1 pts BVPS growth 10% 9% -1 pts 10% 9% 0 pts 10% 10% 0 pts FY21F FY22F FY23F Insurance – Life │ Hong Kong Ping An Insurance │ April 20, 2021 7
We value Ping An’s life insurance and health insurance segments using a weighted average P/EV and P/BV Gordon Growth Model (33% weighting to P/EV GGM and 67% weighting to P/BV GGM), while we value its property and casualty (P&C) insurance division using a P/BV GGM. The trust, securities and asset management divisions are also valued using a P/BV GGM.
The banking business is valued at market value since Ping An Bank is listed on the Shenzhen Stock Exchange. Within the fintech and healthtech businesses, the units that are already listed (i.e. Good Doctor (1833 HK, Not rated), OneConnect (OCFT US, Not rated), Lufax (LU US, Not rated) and Autohome (ATHM US, Not rated)) are valued at their current market value, the units that have raised capital prior to listing (i.e. HealthKonnect) are valued at their most recent post-money valuations, while the remaining technology units of Ping An Group are valued using peer technology company P/BV multiples.
Our peer technology company P/BV multiple is derived from a simple average P/BV multiple of four types of technology companies, namely healthtech, fintech, Internet and online verticals, and others. Within each of these four groupings, we take the weighted average P/BV multiple of a selection of companies chosen across the globe
Furthermore, to take into account the fact that we are valuing the remaining unlisted technology businesses of Ping An, we also apply a 40% valuation discount to these multiples to reflect: i) the opaqueness of these remaining technology businesses, and ii) the relatively illiquid nature of these businesses, which would make it very difficult to be sold at prices that approach listed companies’ valuation multiples.