Is Ping An Insurance (Group) Company of China, Ltd A Great Investment Right Now?

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Established in 1988, Ping An Insurance (Group) Company of China, Ltd (Ping An) has matured as a leading personal financial services company in China. Listed in both the Hong Kong Stock Exchange and Shenzhen Stock Exchange, Ping An has a total of HK$ 1.5 trillion in market capitalisation. In this article, I’ll cover on the company’s latest financial results and valuation figures.

Thus, here are 11 things to know about Ping An before you invest:

• Breakdown of Revenues 2018
  Ping An derives income from five key business segments. They include:
  
  

No.	Key Business Segments	Revenue (RMB Million)	Revenue (%)
1	Life and Health Insurance	572,623	52.9%
2	Property and Casualty Insurance	231,947	21.4%
3	Banking	212,743	19.7%
4	Other Asset Management	47,348	4.4%
5	Fintech & Healthcare	34,939	3.2%
6	Others	(17,454)	-1.6%
Total Revenues 2018	1,082,146	100.0%

Source: Ping An’s Annual Reports


Thus, we would look into the top three segments of Ping An in greater detail as they had collectively contributed as much as 94% of revenues to Ping An in 2018.

• Segment 1: Life and Health Insurance
  It offers life and health insurance products via companies such as Ping An Life, Ping An Annuity, and Ping An Health. This segment has a CAGR of 21.0% in revenues, up from RMB 102.7 billion in 2009 to RMB 572.6 billion in 2018. It remains a key income contributor and a growth driver to Ping An as a collective group.
  
  
  

Source: Ping An’s Annual Reports

• Segment 2: Property and Casualty Insurance
  It offers a wide range of insurance products which include auto, cargo, liability, home contents, property, engineering, accident, health and as well as international reinsurance businesses through Ping An Property and Casualty. This segment has achieved CAGR of 24.6% in revenue, up from RMB 32.1 billion in 2009 to RMB 231.9 billion in 2018. Hence, it is also a key growth driver to Ping An.
  
  
  

Source: Ping An’s Annual Reports

• Segment 3: Banking
  Ping An Bank has achieved a CAGR of 44.5% in revenues, up from RMB 7.7 billion in 2009 to RMB 212.7 billion in 2018. This is attributable to a continuous growth in net interest revenues, fees & commission income as a result of rapid growth in its loan and advances assets over the past 10 years.
  
  
  

Source: Ping An’s Annual Reports

• Group Financial Results
  Collectively, Ping An has achieved a CAGR of 24.3% in total revenue, up from RMB 152.8 billion in 2009 to RMB 1.08 trillion in 2018. The rise in total revenue was attributed to growth in all of its key segments stated above. Its shareholders’ earnings had grown by a CAGR of 25.5%, from RMB 13.9 billion in 2009 to RMB 107.4 billion in 2018.
  
  Ping An has a 10-Year Return on Equity (ROE) of 15.88% a year. Thus, it means that Ping An has made RMB 15.88 in annual earnings from each RMB 100.00 in shareholders’ equity from 2009 to 2018.
  
  
  

Source: Ping An’s Annual Reports

• Balance Sheet Strength
  As of 31 December 2018, Ping An has reported to have RMB 6.5 trillion in total liabilities and RMB 7.1 trillion in total assets. Its gearing ratio is 90.4%, calculated by dividing total liabilities with total assets. Hence, it has maintained gearing ratio at around 90% levels for the last 10 years. In 2018, Ping An has reported a group solvency margin ratio of 216.4%, which is higher than its minimum requirement of 100%. Thus, it means that Ping An has adequate finances to further develop its business and to create value for its shareholders.
  
  
  
• Cash Flows Management
  From 2009 to 2018, Ping An made RMB 1.59 trillion in cash flows from operations, RMB 712.6 billion in interest and also RMB 161.9 billion in dividend income. In addition, it raised RMB 736.2 billion in net equities and long-term borrowings. Out of which, it has spent:
  
  – RMB 100.6 billion in net capital expenditures (CAPEX).
  – RMB 2.75 trillion in net acquisition of investments.  
  – RMB 101.0 billion in dividends to its existing shareholders.
  
  
  Overall, it has increased its cash reserves from RMB 8.97 billion in 2009 to RMB 308.02 billion in 2018. Thus, it indicates that Ping An has strong ability in generating cash flows from operations and chose to invest the proceeds into investments for the last 10 years.
  
  
  
• P/E Ratio
  As of 27 May 2019, Ping An is trading at HK$ 84.15 a share. In 2018, the company reported RMB 6.02 or HK$ 6.94 in earnings per share (EPS). It has a current P/E Ratio of 12.13, close to its 5-year average of 11.91.
  
  
  

• PEG Ratio
  At Point 5, Ping An has CAGR of 25.5% in shareholders’ earnings for the last 10 years. Its PEG Ratio is at 0.48. Based on the PEG Ratio formula, it is deemed to be undervalued as Ping An’s PEG Ratio is below 1.0.
  
  
  
• P/B Ratio
  In 2018, Ping An has net assets of HK$ 35.98 a share. Thus, its P/B Ratio is currently 2.34, slightly above its 5-year average of 1.98, but definitely is significantly below its 10-year average of 3.44.
  
  
  

• Dividend Yields
  Ping An has consistently paid out rising dividends per share (DPS) to its shareholders. It grown from HK$ 0.21 in 2009 to HK$ 1.94 in 2018. Ping An’s dividend yield is currently at 2.31% based on its current stock price of HK$ 84.15 per share, higher than its 10-year average of 1.35% a year.
  
  
  

Source: Ping An’s Annual Reports

VIA’s Verdict

Overall, Ping An has achieved substantial growth in revenues and earnings, and thus, was able to pay out higher dividends to its existing shareholders. Thus, its stock price has increased, lifting its market capitalisation from HK$ 0.6 trillion in 2009 to HK$ 1.5 trillion presently.

Source: Google Finance

However, the growth in its stock price was slower than its earnings growth. This caused a fall in its P/E Ratio and P/B Ratio in the 10-year period. Its PEG Ratio is below 1.0 and Ping An is offering higher dividend yields than before, although it is still below 3.0% per annum.

So, would you invest in Ping An at HK$ 84.15 per share today?

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