Ping An Insurance Co. of China Ltd (SEHK:2318)

Ping An Insurance Group is the second largest insurance company in China. Interestingly, it is also one of the few privately owned insurance company in China. There is no large stake shareholders. The Thai Billionaire’s company, Charoen Pokphand Group, has the biggest stake in the company with a 12.9% interests. E-commerce giants such as Tencent Holdings and Alibaba Group have also invested in the company, making it one of the insurance companies with the biggest potential to succeed in the online space.

1. STOCK INFORMATION

1
TICKER SYMBOL: SEHK:2318
MARKET CAP: HK$ 689.1 Billion (Updated 5 Aug 2016)
MARKET PRICE / SHARE: HK$ 36.7 (Updated 5 Aug 2016)
SECTOR: Insurance
INDUSTRY: Life insurance

2. THE BUSINESS

Ping An Insurance Group is the second largest insurance company in China. Interestingly, it is also one of the few privately owned insurance company in China. There is no large stake shareholders. The Thai Billionaire’s company, Charoen Pokphand Group, has the biggest stake in the company with a 12.9% interests.

KEY STATISTICS (FY2015) 

Net Revenue: CNY$ 696.3 Billion
Net Income: CNY$ 54.2 Billion
Total Assets: CNY$ 4.77 Trillion
Earnings per Share: CNY$ 2.98
Dividend per Share: CNY$ 0.53
Net Income Margin: 7.8%
ROE: 17.0%

3. KEY OPPORTUNITIES

a. Aging Population
China population is aging. As the world’s most populated country began to grow older, the need for insurance might increase as well. Moreover, as the country grows its middle class, the more educated and affluent of its people would see the need for insurance as part of their family financial planning.
This trend can be seen as China Life Insurance saw market share of the top 7 insurance companies losing ground to smaller enterprises but yet the premium growth is still growing strongly for the top 7 insurance companies; signalling strong growth in the industry.

b. Development of China Financial Infrastructure
Secondly, as China financial infrastructures developed, the insurance market will grow with it. Currently, financial markets such as its stock market, bond market, bank loans to SMEs are still relatively weak compared to other neighbouring markets.

As the financial market matures, the insurance sector has a strong part to play as well.

c. Development of Health Care Services
Similarly, the development of its health care system is also important to the growth of the insurance sector. Most insurances are linked to medical related product, for protection, or for financial planning products. Thus, as the two key industries developed, so would the demand for more and better insurance products.

d. Development of e-Insurance
Ping An Insurance seemed to be the de-facto insurance company that might has the most potential in the e-insurance space. That is because, both Tencent Holdings and Alibaba Group have invested in the company and setup Zhong An Online Property Insurance for it, the first online insurance seller in China.

With the backing of both tech-giants, Ping An Insurance might be a front runner for the future of insurance in China.

4. KEY RISKS

a. Too Big To Growth
Being a SOE, especially one with the largest market share in the country, it is important for investors to know that the company not only have to serve its shareholders, it has to serve its country first. At a time of national disaster, or high inflation, the company might be forced by the government to pay out excessive claims or maintain low prices to help its people.
It is the nature of being a SOE and it is something investors need to be aware of.

b. Global Competition
As China opens up to the world, it will slowly allow more foreign companies to operate in the country. If China becomes a free market in the future, the addition of foreign insurance company into the sector might create a very competitive landscape in China. Pricing might be affected and margins for insurance companies might be much more depressed than the current level.

5. VALUATION

China Life Insurance is trading at 10.3 times its earnings and offers a 2.2% dividend yield.

6. LISTED PEERS

1. China Life Insurance (HK:2628)
2. China Pacific Insurance (SHSE:601601)
3. AIA Group Limited (1299:HK)
4. New China Life Insurance (SHSE:601336)

7. INVESTOR RELATIONS

Investor Relation Material:
Annual Report
Financial Information

IR Mailbox: IR@pingan.com.cn

8. TOP SHAREHOLDERS DIRECT INTEREST (31 June 2016)

1. Charoen Pokphand Group – 12.9%
2. Shenzhen Investment Holdings – 5.27 %
3. Tongying Trade Co. – 4.32%

9. FINANCIALS

ping an IS

Morningstar – Income Statement
ping an BS

Morningstar – Balance Sheet

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