Chinese insurance giant Ping An’s first-half profit rises unexpectedly even as pandemic weighs on new policy sales
- China’s largest insurer beats analysts’ estimates as it reports a 4 per cent jump in first-half profit to US$8.8 billion
- Substantial uncertainties concerning Covid-19 as well as the domestic and overseas environment remain in the second half, says chairman Peter Ma
Interim profit for January to June grew 4 per cent year on year to 60.27 billion yuan (US$8.8 billion), or 3.45 yuan per share, bucking Bloomberg’s estimates of a 9 per cent decrease in profit to 52.75 billion yuan.
The sales value of new policies, an important indicator of its core insurance business, fell by a sharp 28.5 per cent year on year to 19.57 billion yuan.
“Substantial uncertainties will remain regarding Covid-19 as well as the domestic and overseas environment in the second half of 2022,” Ping An chairman Peter Ma Mingzhe said in an earnings statement to the Hong Kong stock exchange on Tuesday. “Facing severe challenges, we still have far to go in reform and innovation.”
The Shenzhen-based insurer said it will pay an interim dividend of 0.92 yuan per share, 4.5 per cent higher than a year earlier.
The net profit at its property insurance unit declined 22 per cent to 8.38 billion yuan, while profit at its asset management and technology divisions slumped 40.6 per cent and 23.8 per cent, respectively.
Total investment income in the first half slumped 67 per cent to 14.77 billion yuan, due mainly to 42.72 billion yuan in realised losses because of market volatility.
This was offset by the banking business, which reported a 25.6 per cent increase in first-half net profit to 22.09 billion yuan.
Ping An, HSBC’s largest shareholder with a 9.2 per cent stake, launched a campaign to restructure the bank in April, a move supported by many minority shareholders. However, the plan has been rejected by HSBC’s management, which cited cost and risks as its main concerns.
“Ping An has experienced weak growth in its main life insurance business, which saw slow recovery because of the epidemic,” said Kenny Ng Lai-yin, a strategist at Everbright Securities International. The downturn in the mainland’s real estate market has also affected Ping An’s investment performance, he added.
Last year, Ping An set aside 43.2 billion yuan in provisions for its investments in Fortune Land, the developer’s largest shareholder with a 25.2 per cent stake. Fortune Land is saddled with loans worth 93.9 billion yuan on which interest and principal are due.
“Ping An wants other sectors in its investment portfolio to offset Fortune Land’s unfavourable effect to a certain extent,” Ng said. “The spin-off of HSBC will definitely be conducive to Ping An’s investment performance.”
In Toto Consulting, a Hong Kong-based due diligence adviser, last week issued a research report believed to be commissioned by Ping An. The report listed out three possible options, one of which was for HSBC to spin off its Asian business and distribute shares to its existing shareholders, which could unlock a market value of around US$26.7 billion.
The second option called for carving out HSBC’s Asian business, which could result in an upside of US$12.2 billion, while the third option called for separating the bank’s Hong Kong retail business, which could lead to an upside of US$40.6 billion. In both these scenarios, new investors are expected to take a minority 25 per cent stake in the listed entity.
Such a move could help HSBC circumvent UK regulations in case it is asked to suspend dividend payment, which is a big income source for Ping An, Ng said, adding that the insurer received more than HK$3.2 billion in dividends from HSBC in 2021.
Ping An’s shares closed 1.3 per cent lower at HK$42.95, a fresh five-year low ahead of the earnings release. The shares have declined 16 per cent since it called on HSBC to split at the end of April.
As a London-headquartered bank, HSBC had to follow the UK regulator’s order to cancel the final dividend of HK$0.21 a share for 2019 and suspend the dividend for most of 2020. Based on its stake of 1.64 billion shares and HSBC’s average payout over the prior five years, this roughly translates to US$937 million in lost income for Ping An.
“An Asia spin-off for a multinational company like HSBC is very complex,” said Vincent Kasbi, head of Asia at Paris-based consulting firm Sia Partners. “With these decisions, there is always a delicate balance between saving costs and losing one of your key competitive advantages of accessible avenues to financial services in global markets, products and services.”