Summary. Ping An announced 1H19 interim results, where operating profit rose 23.8% YoY. Group embedded value per share increased 11% YoY while annualized RoEV was 11.2% YoY.
- Operating profit +23.8% YoY in 1H19 to RMB 73.46bn, which has become the primary gauge for the Company’s operation and the basis for dividend payout. Net profit increased 68% YoY to RMB 97.7bn, representing 70% of consensus estimate for the entire year. The surge in net profit was primarily attributable to 1) strong growth in operating profit; 2) one-off impact of the decrease in income tax for 2018 after implementing new pre-tax deduction rules of fee and commission expenses (RMB 10.45bn); and 3) short-term investment variance (RMB 13bn) when actual investment return exceeded assumptions.
- NBV margin expansion; positive NBV guidance. In 1H19, NBV increased 4.7% YoY (6.1%/3.2% in 1Q/2Q), primarily attributable to margin improvement (+5.7ppt YoY to 44.7%) offsetting FYRP decline. Although agent headcount was reduced 9.3% from YE18 to 1.29 million, agent channel NBV margin expanded 9.9ppt YoY to 58.9% thanks to product structure optimization toward protection products. Mgmt. still pencils in faster-than-2018 NBV growth in 2019, i.e. >7.3%, which implies that NBV growth in 2H19 should exceed 8.9%.
- Heavy investment in technology. In1H19, operating profit from technology business dipped 33% YoY to RMB 2.8bn. However, tech business realized total revenue of RMB 38.4bn, up 33.6% YoY. Positioned as technology-powered retail financial services group, Ping An kept increasing investment in technologies, by building open platforms (e.g. HealthKonnect), acquiring traffic and user data (e.g. OneConnect) and engaging in fundamental technologies, such as AI and blockchain. Ping An Good Doctor experienced explosive revenue growth of 102.4% YoY in 1H19.
- Valuation. The stock now trades at 1.25x 1H19A P/EV, above peers’ average. Excluding the value of technology business, it trades at 1.18x P/EV. Ping An’s valuation premium vs. peers has been stable over time for its technology empowerment, which not only boosts traditional finance business, but also generates revenue and profit for the Group.
