Decoding Ping An Mid-Report: 3 Logics Break Valuation "Ceiling

On August 23rd, Ping An Insurance's mid-year report card was released, showcasing the high-quality development of its three core businesses—life insurance, property insurance, and banking—as well as its sustained and stable dividend performance, fully displaying the "blue-chip" character.

The capital market highly recognized this mid-year report, with Ping An's A-shares closing up by 3.93%, and H-shares closing up by 3.64%, leading the entire insurance sector.

As a model of long-term value investment in the capital market, in recent years, Ping An has been under continuous pressure in its capital market performance due to the impact of external environments and its own period of reform and transformation. Now, with the mid-year report's performance exceeding expectations, Ping An will once again gain the favor of capital.

Against the trend, "growing nodes"

In the first half of 2024, the accelerated decline of long-term interest rates, intensified turmoil in the capital market, and ongoing geopolitical conflicts posed extremely high challenges to the operation and development of insurance companies.

Inamori Kazuo once said, "The growth of a company is like bamboo; only by forming many 'nodes' in adversity can the growth of a company be supported and the structure of the company become strong and resilient."

Faced with dual challenges from domestic and overseas, how insurance companies forge the ability to traverse cycles and grow many "nodes" has become an important standard for measuring their operational quality.

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In the first half of the year, Ping An achieved a net profit attributable to the parent company of 74.619 billion yuan, a year-on-year increase of 6.8%; the operating profit attributable to the parent company was 78.482 billion yuan; the annualized operating ROE was 16.4%; among them, the combined operating profit attributable to the parent company of the three core businesses—life and health insurance, property insurance, and banking—was 79.565 billion yuan, a year-on-year increase of 1.7%; the group's total assets exceeded 12 trillion yuan; and the interim dividend for 2024 was 0.93 yuan per share in cash.

By examining the above core operational data, it can be seen that Ping An not only grew many "nodes" in the face of adversity but also achieved significant growth.

Especially in the life insurance business, as the core engine of Ping An's giant ship, its strong recovery has brought abundant performance growth momentum to the group as a whole. In the first half of 2024, the new business value of life and health insurance business reached 22.32 billion yuan, a year-on-year increase of 11.0%.Discussing the double-digit growth in new business value of life insurance in the first half of the year, the Group's Co-CEO Guo Xiaotao stated: "Comparing to the market, benchmarks, ourselves, and the budget, from the perspective of 'four comparisons,' life insurance has met the requirements in the first half of the year, and we are looking forward to surpassing these requirements in the second half."

The realization of "four comparisons" in life insurance is inseparable from the steady progress of Ping An Group's "4 channels + 3 products" strategy.

The agency channel, as the focus of Ping An's channel reform in recent years, has successfully shaped a high-capacity, high-quality, and highly educated agency team after large-scale "purging the virtual and embracing the real." The proportion of "excellent +" in new additions has increased by 10.2 percentage points year-on-year. The new business value of the channel has grown by 10.8% year-on-year, and the new business value per person has increased by 36.0% year-on-year; the 13-month policy continuation rate has risen by 2.8 percentage points year-on-year, and the 25-month policy continuation rate has risen by 3.3 percentage points year-on-year. As of the end of June this year, the number of individual life insurance sales agents is 340,000.

In addition, the bank insurance, community grid, and other channels also have eye-catching performances in this mid-year report. In the first half of this year, Ping An's bank insurance channel's new business value was 2.641 billion yuan, a year-on-year increase of 17.3%. The community grid has laid out 126 outlets in 90 cities, an increase of 39 cities compared to the end of last year, and has established a high-quality team of 15,000 special agents, achieving a 5.8 percentage point increase in the 13-month policy continuation rate for existing customers year-on-year, and the first-year scale premium is 2.6 times that of the same period last year.

"Insurance + service" is another important reason for the better-than-expected performance of Ping An's life insurance. In recent years, in response to the upward trend in health, medical, and elderly care needs brought about by the aging population in China, Ping An has created three major product service lines of "insurance + health management," "insurance + high-end elderly care," and "insurance + home-based elderly care."

In the first half of 2024, Ping An's life insurance health management has served nearly 16 million customers. As of the end of June 2024, the home-based elderly care service covers 64 cities nationwide, with more than 120,000 customers having obtained the qualification for home-based elderly care services; Ping An's high-quality health and elderly care community project has been launched in 5 cities.

As the other two core businesses alongside life insurance, property insurance and banking have also made steady progress. In the first half of 2024, Ping An Property Insurance's insurance service revenue was 161.91 billion yuan, a year-on-year increase of 3.9%; the overall comprehensive cost rate was optimized by 0.2 percentage points year-on-year to 97.8%; Ping An Bank's net profit was 25.879 billion yuan, a year-on-year increase of 1.9%. As of the end of June, the core tier-1 capital adequacy ratio has risen to 9.33%, the non-performing loan ratio is 1.07%, and the provision coverage ratio is 264.26%.

This mid-year report has also received "shout-outs" from many securities firms. In its research report, Dongwu Securities stated: "The recovery of new business has led to a comprehensive improvement in value and profit indicators, maintaining a buy rating."

Ping An, winning battles, is not a myth of soaring to the sky, but a long march step by step, which is also the inevitable path for survivors to evolve.As Jim Collins profoundly reveals in his book "Good to Great," no matter how exciting the final outcome may be, the transformation from good to great is never achieved in one fell swoop. In this process, there is no single clear action, grand plan, or once-and-for-all innovation, and there is absolutely no chance breakthrough or miracle from the sky. On the contrary, this process is akin to pushing a heavy giant flywheel in one direction, round after round, accumulating momentum, until it reaches the tipping point and completes the leap.

Born in Shekou, Shenzhen, the epicenter of reform and opening up, Ping An spent its first decade in insurance; the second decade in integrated finance; the third decade in "finance + technology"; and the next decade, Ping An aims to focus on "integrated finance + healthcare and elderly care."

The core of Ping An's integrated finance model lies in driving customer needs, committed to providing customers with comprehensive, one-stop financial and lifestyle services. This model not only meets customers' diverse financial needs at different life stages and various life scenarios but also brings more convenient and personalized financial experiences to customers through cross-domain integration and innovation.

The "managed care model" seamlessly combines the online/offline healthcare and elderly care ecosystem with financial services as the payer, building a "to line, to store, to home" service capability. This move not only creates independent direct value but also immense indirect value, empowering the financial main business through differentiated "product + service."

In Ping An's journey, whether it is deep cultivation in the field of integrated finance or innovative breakthroughs in the "managed care model," it is like pushing a huge flywheel, and technology and the "worry-free, time-saving, cost-saving" triple-saving services are like the quietly accumulating momentum, round after round, until reaching that decisive tipping point and completing the leap.

For example, Ping An Property Insurance uses technological power, relying on remote sensing, meteorological detection, and other technologies, to pilot precise underwriting and claims in agricultural insurance; in terms of service innovation, relying on the "Ainongbao" online platform, it has realized self-service payment and self-service claims functions, shortening the underwriting and case closure cycle, and improving the satisfaction of farmers' services.

Ping An Health leverages technology combined with new technologies such as cloud computing, artificial intelligence, and AIGC to build a complete "3+3+3" front, middle, and back-end comprehensive technical system, achieving a transformation from "policy-centered" to "customer-centered," breaking through the original process and data disconnects of various business units, and connecting three major business ecosystems: individual insurance, group insurance, and healthcare services, empowering multiple links such as product, sales, service, underwriting, claims, and finance.

In the first half of 2024, 28.6% of the group's new customers came from the healthcare and elderly care ecosystem, and customers enjoying the group's healthcare and elderly care ecosystem service rights accounted for more than 68% of the new life insurance business value. Among Ping An's 236 million individual customers, more than 63% of customers also used services provided by the healthcare and elderly care ecosystem, with an average contract number of about 3.36 and an average AUM of about 57,500 yuan, which are 1.6 times and 3.8 times that of individual customers not using healthcare and elderly care ecosystem services, respectively.

With the progress of the times and the changes in residents' lifestyles, the concept of "time is money" has taken root in people's hearts, and people are increasingly pursuing timeliness, speed, and cost-effectiveness. Faced with this change, service speed and efficiency have become one of the core elements of enterprise competition.

Since its establishment in 1988, Ping An's original intention has been to wholeheartedly meet customer needs. The thoughts, worries, expectations, and hopes of customers are the guiding principles of Ping An's business operations.As early as three years ago, Ping An introduced the "triple-saving" services of "worry-free, time-saving, and cost-saving," and this year it has further promoted it as the company's "top project."

Chairman Ma Mingzhe stated in the mid-year report: We call upon every Ping An employee to "become the most professional financial advisor, family doctor, and pension manager by the side of our customers." We must use our professionalism and integrity to allow every customer to fully enjoy the ultimate experience of "triple-saving" in integrated financial and medical pension services. This is our unwavering solemn commitment to 236 million Ping An individual customers and the broad masses of the people.

In terms of worry-free services, Ping An designed the "Ping An Integrated Account" universal login system, upgraded the online intelligent mini-program "Any Door," and connected the apps of 13 member companies, making it one-click to reach "buying cars, buying houses, buying insurance, investing savings, credit cards, medical health, and pension." In terms of time-saving, Ping An Life Insurance launched the "111 Express Compensation" upgraded service, bringing customers the "three-saving" express claims service experience of "one sentence reporting, one-click upload, and one-minute review." In terms of cost-saving, Ping An Bank introduced the "Student Credit Card," integrating resources such as insurance, banking, and medical health within the group, providing students with comprehensive care and various discounts in studies, consumption, health, and travel.

With a rich integrated financial product system, diverse customer touch channels, and the continuous promotion of the "triple-saving" project, Ping An added 13.92 million new customers in the first half of 2024.

Ping An's "worry-free, time-saving, and cost-saving" services have broken the "cold" image of traditional financial services, allowing customers to feel a warmer and more considerate service. This service not only increases customer value but also reflects Ping An Group's adherence to the core values of "never forget the original intention, finance for the people."

Triple logic opens the valuation "ceiling" for Ping An.

At present, when the valuation of the insurance sector has sunk to a historical low, Ping An is expected to use this better-than-expected performance to open the valuation "ceiling" with triple logic.

The first logic: The macro environment releases growth potential.

In investment, top-down is a basic logic, which is to say that deeper waters breed larger fish. At the 20th Central Committee's third plenary session, reform measures proposed for industries such as medical care and pension have laid a solid foundation for the long-term growth potential of Ping An Group.By the end of 2023, the population of people aged 60 and above in China reached 297 million, accounting for 21.1%; the population aged 65 and above reached 217 million, accounting for 15.4%. China has entered a moderately aged society.

China has a large base of elderly population and a fast aging speed, leading to a rapid increase in the demand for elderly care services. On the other hand, according to surveys, more than 90% of the elderly in China prefer to stay at home for their old age, making the development of home and community elderly care services imperative.

The "Decision" of the Third Plenary Session mentioned that it is necessary to improve the financing and reasonable adjustment mechanisms for basic pension and basic medical insurance, and to leverage the supplementary role of various types of commercial insurance. In addition, in response to the issue of "having a place to live in old age", the "Decision" stated that it is necessary to optimize the supply of basic elderly care services, cultivate community elderly care institutions, encourage and guide enterprises and other social forces to actively participate, and promote the integration of medical care and elderly care.

This coincides with Ping An's "insurance + service" model.

The second logic: policy guidance to reduce debt costs.

Since 2024, the yield on China's medium and long-term bonds has declined significantly. By the end of August, the yield on 10-year government bonds has fallen below 2.1%. Affected by the decline in long-term interest rates and fluctuations in the capital market, life insurance companies face significant investment pressure. The annualized financial investment return rate in the second quarter of 2024 was only 2.87%.

To prevent the accumulation of interest rate risk, in August, the Financial Regulatory Authority issued the "Notice on Improving the Pricing Mechanism of Life Insurance Products" (hereinafter referred to as the "Notice") to the industry.

The three core contents of the "Notice" are: 1) From September 1st, the预定 interest rate of traditional insurance will be reduced; from October 1st, the预定 interest rate of dividend insurance and the minimum guaranteed interest rate of universal insurance will be reduced; 2) Establish a dynamic adjustment mechanism that links the预定 interest rate to market interest rates; 3) Deepen the "reporting and execution integration".

Group Co-CEO Guo Xiaotao said: "The reduction of预定 interest rates for insurance products in the life insurance industry is a major benefit for the industry, which will effectively prevent the continuous deterioration of industry interest rate losses. Ping An Life Insurance will also benefit from industry adjustments. In response to this change, the company will further optimize and adjust the product structure. In the future, the product structure will focus on dividend products, which are expected to account for more than 50% of sales."

As of June 30, 2024, the scale of Ping An's insurance fund investment portfolio exceeded 5.2 trillion yuan, a 10.2% increase from the beginning of the year. The annualized comprehensive investment return rate of the insurance fund investment portfolio was 4.2%, up by 0.1 percentage points year-on-year; the average comprehensive investment return rate over the past 10 years was 5.4%.The Third Level of Logic: Securing an Early Position in the "Comprehensive Finance + Medical and Elderly Care" Long-Slope Race.

Whether it is the reform measures for industries such as healthcare and elderly care proposed by the Third Plenary Session, or policy guidance to reduce the liability costs of insurance companies, these external benefits, while providing external multipliers for investment, the true art of investment lies in discovering and seizing the internal growth of enterprises themselves.

Ping An's "Comprehensive Finance + Medical and Elderly Care" strategy, under the conditions of favorable timing, location, and people, has already formed its own internal growth.

Favorable Timing: The Central Financial Work Conference held at the end of October 2023 proposed to "accelerate the construction of a financial powerhouse," elevating financial work to a higher strategic level. As Ping An ranks 53rd in the Fortune Global 500 and 1st among global insurance companies, it will have greater development opportunities and space in the grand narrative of building a "financial powerhouse."

Strategic Location: Currently, China's population development shows a trend of fewer children and aging, with residents' demands for medical care, health, and elderly care continuously increasing. Ping An's early positioning in "Comprehensive Finance + Medical and Elderly Care" will help it achieve leapfrog development.

Harmony Among People: As early as 2021, Ping An's senior management proposed to create a Chinese version of HMO; later, they upgraded "Comprehensive Finance + Medical Health" to "Comprehensive Finance + Medical and Elderly Care." This series of forward-looking strategies all demonstrate the senior management's keen insight into industry development trends and far-sighted planning.

With the mid-report performance exceeding expectations and the macro environment improving, Ping An is currently an excellent opportunity to swing and hit the ball.