Hong Kong company reporting season

Diversity helps Ping An outpace insurance industry peers, but profit still expected to fall

Banking business, particularly, likely to soften the effects of the falling stock market

PUBLISHED : Sunday, 14 August, 2016, 4:15pm
UPDATED : Sunday, 14 August, 2016, 7:15pm

Ping An Insurance, China’s second largest insurer which also delivers banking, investment and internet financing products, is expected to report a 3 per cent profit decline on Thursday.

But analysts expect its diversified business model to help it out-perform its industry peers.

Founded and still led by chairman Ma Mingzhe, Ping An’s main focus remains insurance, with life and general insurance contributing 57 per cent of its profit last year.

Its banking operation delivered 23 per cent of earnings last year, with the remainder split between its asset management and securities businesses.

JPMorgan said that diversified portfolio will help the company outpace other pure-life insurance companies, which are expected to see more-dramatic 45-70 falls in six-month returns.

Ping An’s banking unit, Ping An Bank, last week reported profit for the first half of

12 billion yuan (HK$14 billion), a 6 per cent interim increase, which JPMorgan said would “support the group’s defensive first half year earnings reporting potential”, given the bank’s profit represents 20-30 per cent of total group net income.

Ping An Life restructured its business strategy in June to expand into lower-tier cities... we expect it to have sustained strong new-business momentum in the first half of this year
Charles Zhou, Credit Suisse research analyst

China Life, the country’s largest life firm, last month warned it expected first half net profit to fall by a whopping 65-70 per cent, while New China Life Insurance and Taiping Insurance red-flagged declines of 45 and 46 per cent, respectively.

China Insurance Regulatory Commission last month said the overall industry’s profits fell 54.05 per cent in the half to 105.6 billion yuan, as a result of last year’s strong stock market rally not being repeated.

The Shanghai A-shares market hit a seven-year high last year which helped Ping An to a 62.2 per cent growth in interim profit of 34.65 billion yuan in 2015.

This year, however, the benchmark Shanghai Composite Index has declined by more than 16 per cent, making the A-share market the worst performer globally.

Credit Suisse research analyst Charles Zhou said Ping An’s earlier reporting in June of a 16.6 per cent rise in first-half premiums, racked up impressively against its 2.7 per cent in general insurance income.

“Ping An Life restructured its business strategy in June to expand into lower-tier cities,” Zhou said in a research note last week.

“Coupled with the continued success of its high-quality ‘Ping An Fu’ products, we expect it to have sustained strong new-business momentum in the first half of this year.”

Zhou said the recent extreme weather in South China could put a dent in Ping An’s claims ratios.

“But in view of its geographically diversified portfolio, we expect limited claims pressure from the floods in the first half of this year,” he said.

Ping An bought a 47.4 per cent stake in Chinese online business AutoHome for US$1.6 billion from Australian’s Telstra in June, and will utilise the business’s offline network to serve its customers.

It also announced last month it was spinning off Ping An Securities and listing it in Hong Kong to raise funds and boost its international exposure.

“We expect positive impact from those two transactions, long term,” Zhou said.

Morgan Stanley equity analyst Jenny Jiang said the AutoHome deal makes Ping An its single largest shareholder.

“We expect more cooperation between the two in areas such as auto sales, and related financial

services such as financing and insurance,” she said.

Ping An closed at HK$39.05 last Friday, up 1.26 per cent from Thursday. Its shares price has risen 19.97 per cent in the past six months.