Ping An’s Investor Appeal Lies in Bank, Asset Management Mix
HSBC Holdings Plc’s $9.6 billion stake in Ping An Insurance (Group) Co. (2318) offers investors a share in a diversified business with stable profit growth, analysts at Capital Securities Co. and BoCom International said.
HSBC, Europe’s largest lender by market value, said Nov. 19 it’s in talks to offload its 15.6 percent holding in Ping An, China’s second-largest insurer, without identifying potential buyers. Thailand’s Charoen Pokphand Group is offering to buy the stake for HK$74 billion ($9.6 billion), the Shanghai Securities News said on Nov. 20, citing a person it didn’t identify.
“Ping An has over the years grown into one of the best insurers in China and certainly has its value as a long-term investment,” said Xie Jiyong, a Shanghai-based analyst at Capital Securities. “Although the insurance sector has been sluggish and volatile in the past few years, Ping An’s banking and trust operations maintained stable growth, enabling the company to achieve growth in profit while some other big companies report huge declines.”
Chairman Peter Ma has overseen the expansion of Ping An into the world’s third-largest insurer by market value, as well as banking, securities and money management operations, since he founded the company in the southern Chinese city of Shenzhen 24 years ago. With the most diversified business mix among local insurers, Ping An can cross-sell its products among various units, giving it greater potential to grow revenue, said Li Wenbing, a Beijing-based analyst at BoCom.
“One of the appeals of Ping An is its financial holdings structure with life, property insurance, banking, wealth management businesses,” said Li. That’s unlike many Chinese insurance companies, which rely on bancassurance for distribution and have a bank-controlled client base, he added.
The company’s new business value, which gauges the estimated profit from new policies sold, may grow a “strong” 13 percent in the second half of this year as agent sales shift back to long-term risk-protection products, improving from a 9 percent drop in the first half, Barclays Plc said in a report e- mailed Nov. 14.
“Ping An’s stock continues to trade on very depressed multiples” of four times estimated new business value for 2013, although the indicator’s growth outlook has improved, analysts led by Mark Kellock wrote. “We believe the current price offers attractive potential upside.”
The stock rose 1 percent to HK$59.40 at the close of Hong Kong trading, taking its gain this year to 16 percent. The Hang Seng Finance Index, of which Ping An is a member, has gained 20 percent in the period.
New Business Profitability
Thanks to its strong presence in bigger cities and effective management of its agent forces, Ping An enjoys the highest individual agent productivity among Chinese insurers and the highest new-business profitability, according to Core Pacific Yamaichi International Ltd.
Ping An’s agents averaged 7,316 yuan ($1,174) in new business per month in the first half of this year, compared to 4,800 yuan at larger China Life Insurance Co. and 4,400 yuan at China Pacific Insurance (Group) Co., said Olive Xia, Core Pacific’s Shanghai-based analyst. Subsequently, Ping An’s new- business margin stood at 32 percent for that period, more than double China Life (2628)’s and China Pacific’s, according to Xia.
Founded in 1988 as China’s first joint-stock insurer, Ping An has grown into the nation’s second-biggest insurance company, with 74 million clients, more than 175,000 employees, and about 500,000 agents.
Ping An’s property-insurance unit obtained 15 percent of its business from clients at other operations in the first half of this year, while 42 percent of Ping An Bank Co.’s credit cards were issued through non-banking channels, according to the company’s first-half report. Ping An last year folded its banking operations into Shenzhen Development Bank Co. after an acquisition, and renamed the combined lender after the insurer’s old banking arm.
Ping An Securities Co. underwrote 34 initial public offerings in China last year, the most among brokerages, while its trust unit’s assets under management jumped 50 percent from 2009 to almost 200 billion yuan in 2011, the company said.
“If you look at sales figures in the past few years, the cross-selling model is working,” Capital Securities’ Xie said. “And it’s not a model every insurer can copy as it needs backstage coordination and management adjustments.”
China’s insurance market expanded an average 19 percent a year in the past decade to become the world’s sixth biggest, while insurers’ assets jumped tenfold, according to the China Insurance Regulatory Commission. Premiums income slid 1.3 percent in 2011 as regulators tightened rules on selling coverage over bank counters and insurers adjusted their product mix to improve profitability.
The nation’s insurance market is attracting investors. People’s Insurance Company (Group) of China, the nation’s largest property insurer, is seeking as much as HK$27.8 billion in what may become Hong Kong’s biggest initial public offering in more than two years.
The exit of HSBC from its investment in the Chinese insurer with a dual share listing in Hong Kong and Shanghai will have “limited” impact on Ping An, said Goldman Sachs Group Inc.
“The news could create negative sentiment for Ping An’s share price movement near term, but have a limited impact on Ping An’s strategy, management, or fundamentals,” Goldman Sachs analysts Mancy Sun and Ning Ma wrote in a report Nov. 20. “We believe there is not much synergy between HSBC and Ping An’s businesses.”
There would be no fundamental impact on Ping An should HSBC reach a deal to sell the stake, although short-term sentiment may be hurt, analysts at Morgan Stanley and Bank of America Corp.’s Merrill Lynch & Co. unit said in separate reports this week.
“If they want to find a financial market with high-growth potential to invest in, the Chinese mainland remains a very good option,” said Joyce Huang, a Hong Kong-based analyst at Fitch Ratings. “What would worry us is if it’s a majority, strategic shareholder reducing its holdings, which might affect a company’s operations. But HSBC is only Ping An’s financial investor, so there won’t be any direct impact.”
Ping An refocused on the domestic market after a foray to expand in Europe ended with the company writing off 22.8 billion yuan in 2008 on its investment in Fortis, once Belgium’s biggest financial-services firm that eventually collapsed despite government bailouts, a casualty of the global credit crunch.
“The company’s operations are running as usual,” Ping An’s Shenzhen-based spokesman Sheng Ruisheng said in an e-mailed statement, reiterating an earlier response.
An 18 percent increase in unit Ping An Bank’s profit helped the company’s third-quarter net income rise by 21 percent, buffering the effect of declines in the benchmark Shanghai Composite Index that caused larger rival China Life to suffer its first quarterly loss since 2008 amid impairments.
Beijing-based China Life is the world’s biggest insurance company by market value in U.S. dollar terms, followed by Allianz SE (ALV), based in Munich, according to data compiled by Bloomberg.
Ping An’s third-quarter net income climbed to 2.13 billion yuan as banking revenues rose and net premiums earned expanded 19 percent, the company said last month. The embedded value, which investors use to gauge insurers’ net assets after actuarial adjustments, rose 10 percent in the first half to 259 billion yuan, according to its first-half report.
--Zhang Dingmin, with assistance from Bei Hu in Hong Kong. Editors: Andreea Papuc, Malcolm Scott
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