Ping An reported +4.9% YoY increase of operating profit in 2020, although net profit decreased 4.2% to RMB 143.1bn amid COVID-19. Insurance business suffered from shocks and aftershocks of COVID-19, but is expected to gradually recover in 2021. We also anticipate further rollout of Ping An Life’s reform will begin to bear fruit.
- Life and health NBV decline could be reversed in 2021. L&H NBV declined 34.7% YoY in 2020 (agent channel NBV down 37.1% YoY and NBV from long-term protection products down 48.5% YoY). Worse-than-expected life & health business performance reflected mainly the impact of COVID-19 as well as the ongoing reform of Ping An life, which brought short term pains. NBV margin went down 14ppt YoY in 2020 largely due to product mix change. Looking ahead, we see high probability of resuming positive NBV growth in 2021 as pandemic impact alleviates and demand for long-term protection products recovers. The Company expects NBV margin to gradually stabilize, lifted by higher margin products although incorporating services into products may temporarily weigh on margin.
- P&C underwriting margin shrank. P&C premium income rose steadily at 5.5% YoY in 2020 (auto +0.9% and non-auto +14%). However, combined ratio climbed 2.7ppt to 99.1% primarily due to worsening loss ratio of guarantee insurance. Costs of auto insurance also rose when competition became more intense.
- Result positives. 1) Customer development deepened against the backdrop of COVID-19 hindering offline operations. Number of retail customers exceeded 218 million at YE20, up 9% YoY. 2) Technology business operating profit increased. 3) Net investment yield was 5.1%, edging down by 0.1ppt.
- Risks. 1) Investment assets exposing to further downside risks. 2) Life business rebound missing expectation. 3) P&C growth and margin under pressure.
- Valuation. We roll over valuation metrics to YE21, adjust market value of subsidiaries, and modify exchange rate assumption. We lift TP to HK$ 102.3. Maintain BUY.
