Ping An announced 2019 results on 20 Feb. Operating profit increased 18.1% YoY to RMB 132.9bn, after deducting short-term investment variances, impact of discount rate change and one-off items from profit. Life & health insurance NBV increased 5.1% YoY, while group embedded value increased 19.8% YoY.
- NBV: +5.1% YoY; accelerated in 4Q; margin expansion. In 2019, NBV of Life & Health insurance increased 5.1% in 2019 to RMB 75.9bn, likely exceeding average of major peers. Growth accelerated to 6.9% YoY in 4Q (6.1%/3.2%/4.1%/6.9% in 1Q/2Q/3Q). Despite the fact that FYP declined 3.0%, NBV margin was up 3.6ppt YoY to 47.5% thanks to prioritization to high-protection, high-value products. Agent channel NBV margin reached 64.9%, up 7.8ppt YoY.
- Other result highlights. 1) Steady increase in operating profit (+18.1% YoY); 2) enhanced investment income thanks to capital market recoveries. NII held stable at 5.2%, reflecting robust portfolio management under declining interest rate environment, whereas TII climbed 3.2ppt YoY to 6.9%; 3) Steady progress of tech business. Revenue from technology business increased 27.1% YoY to RMB 82.1bn though operating profit decreased.
- Risks and negatives. 1) Performance of insurance agent team was mixed. While NBV per agent and agent income rose, activity rate and size of the agent team declined (total # of agents was 1.17 million at YE19, down 18% from YE18). We believe the Company still faces difficulties retaining and cultivating its core agent team this year. 2) Compressing underwriting margin of P&C business, though still ahead of major peers. The increase in combined ratio was mainly due to rising loss ratio of non-auto underwriting. 3) Asset management business units lagged behind, posting shrinking operating profit; 4) dividend payout ratio on basis of net profit declined to 25% (vs. 29.3% in 2018) though on operating profit basis, it was 28.1% (vs. 27.9% in 2018).
- Valuation. We think the annual result was largely in line with market expectation. While some achievements are encouraging, other trends foreshadow challenges facing the new management team against multiple headwinds. The stock now trades at 1.2 2019A P/EV, much above insurance peers’ average.
