Ping An’s first-half profit hit as China’s largest insurer sets aside provisions of US$5.5 billion related to troubled mainland developer
- First-half net profit at China’s largest insurer fell 15.5 per cent to 58 billion yuan (US$8.94 billion) from 68.7 billion yuan a year ago, misses estimates
- Insurer set aside provisions of 35.9 billion yuan for impairment losses and adjusted valuation of its investments in China Fortune Land Development
China’s largest insurer by market capitalisation said net profit for the six months to June fell 15.5 per cent to 58 billion yuan (US$8.94 billion) from 68.7 billion yuan a year earlier, missing market estimates of a single-digit decline by five analysts polled by the Post. This was the second year in a row the company reported a profit decline for the first half.
First-half profit fell mainly because of a provision of 35.9 billion yuan for impairment losses and adjusted valuation of its investments in China Fortune Land Development. The provisions accounted for 66 per cent of its total exposure of 54 billion yuan in the mainland developer.
China Fortune Land had 81.57 billion yuan of overdue interest and principal on bank loans and bonds as of end July, according to a filing to Shanghai Stock Exchange where the developer is listed.
Ping An, the second largest shareholder of the developer with a 25.25 per cent stake, said the provision reduced its first-half net profit by 20.8 billion yuan. The insurer had set aside 17.7 billion yuan for impairments in the second quarter following provisions of 18.2 billion yuan in the first quarter.
“Despite a complicated, difficult business environment, we increased interim dividends and will repurchase shares again to maximise shareholder returns,” chairman Peter Ma Mingzhe said in the results announcement to Hong Kong stock exchange.
The Shenzhen-based insurer said it will pay an interim dividend of 0.88 yuan per share, 10 per cent more than a year earlier.
Kenny Ng Lai-yin, a strategist at Everbright Sun Hung Kai Securities, said that Ping An’s profit decline was worse than expected, as the insurer had set aside a larger provision for China Fortune Land Development than market expectations of around 30 billion yuan.
“What is more concerning is the decline in its life insurance business, which is its core business,” he said.
The company reported a drop in new sales of insurance policies after it cut down the number of agents to focus on agents’ productivity. New policy sales fell 12 per cent year on year to 27.39 billion yuan in the first half. The number of agents decreased to 877,751 as of end June, 14.3 per cent lower than the end of last year.
Sales of motor insurance were affected by China’s new pricing regulation introduced in September last year, which fell 7 per cent in the January to June period compared to a year earlier.
These were offset by a 72 per cent jump in operating profit in its technology businesses to 6.96 billion yuan. Its internet financial services arm Lufax reported a 33 per cent surge in net profit in the first half, while the revenues of online medical services unit Ping An Good Doctor and fintech arm OneConnect both grew over 30 per cent year on year in the first six months.
The company’s outlook for the second half remains challenging, after it indicated last month that it would need to pay more than 1 billion yuan in compensation to victims of the floods in Henan province. Concerns also remain around its involvement in the rescue of Peking University’s bankrupt unit in May.
Ping An’s shares closed 2.4 per cent lower at HK$62.00 on Thursday before the results announcement, its lowest level since September 2017.
