Takeaways from Ping An's Investor Day
Ping An hosted an Investor Day on 9 Dec and discussed:
(1) quality of VNB from protection;
(2) sustainable earnings growth; and
(3) new EV rules.
We are impressed by its low contribution of interest margins in VNB, -39% (46% of VIF), significantly lower than peers (i.e.
China Life 80%+). This allows Ping An to capture secular growth of the protection business, while minimising investment volatilities.
Assuming investment return is down to 3.7%, the new money yield level, VNB of L/T protections would decline by 21%,
eliminating entire spread income but retaining the healthy 80% VNB from mortality/ expense gains.
Ping An presents its residual margin amortisation (RMA), its core earnings source as a good indicator of the intrinsic value of the
life business. RMA records a 22% 5-year CAGR to Rmb29 bn in 2015, and its balance reached Rmb386 bn by end-1H16.
Looking ahead, we expect its core earnings (RMA) growth to be strong and sustainable, thanks to the consistent focus on L/T protections.
We lift our TP to HK$54 (28% upside) after increasing life multiples (1.4xP/EV). At 1xP/Group EV and 1.8xP/B (12M FWD),
we prefer Ping An to China life on quality and growth sustainability. Ping An is a CS AxJ Focus List stock.
Source: CS