Ping An reported RMB 108.7bn operating profit in 9M20, up 4.5% YoY, while net profit decreased 20.5% to reflect impact of discount rate changes, short-term investment variances and last year’s tax impact. Insurance business lines of the Group were still inflicted by aftershocks of COVID-19, which made social interaction difficult, dampened household demand for insurance products and may lead to a rise in credit risk.
- Life NBV growth remain muted in 3Q. In light of COVID-19 and ongoing reform of the Company, NBV declined 27.1% YoY in 9M20 (-24%/-24.9%/-33.5% in 1Q/2Q/3Q, respectively). NBV margin declined 12.4ppt to 35.7% due to 1) weak sales of higher margin products, which were reliant on face-to-face communication, 2) the Company’s strategy of promoting short-term but lower margin savings products in 3Q in order to acquire customers and keep interacting with clients. Number of insurance agents was 1.048 million at the end of 3Q, down 8.4% QoQ since less active agents quit the team. The Company attached greater emphasis on kickoff season this year compared to previous years’, although we think challenges are likely to last.
- P&C – robust premium growth but worsening underwriting margin. Ping An P&C achieved 11.5% YoY growth of premium income (Auto +6.0% YoY). However, combined ratio reached 99.1%, up 2.9ppt YoY and 1.0ppt from 1H20, primarily due to rising claims of guarantee insurance. As a result, operating profit of P&C decreased 22.4% YoY in 9M20.
- Result positives. 1) Customer development yielded satisfactory results. Retail customers increased 7.0% from YE19 to over 214 million, which laid a solid foundation for future business exploration. 2) Steady progress of technology business, of which operating profit increased 13.6% YoY to RMB 4.67bn in 9M20, whereas revenue increased 8.3% YoY to RMB 65.1bn. 3) Operating profit of life business increased 9.2% YoY mainly thanks to contributions from existing business.
- Risks. 1) Further NBV decline and NBV margin compression; 2) Kickoff season performance missed expectation; 3) Increase of credit risk.
- Valuation. We keep financial forecast and TP unchanged. Challenges still lie ahead but we think Ping An is well positioned to advance its life insurance reform and embrace opportunities after the COVID-19. Maintain BUY.
