Summary
-As at the end of 1H2015, China Pingan's performance was better than our expectation. Net profit increased sharply by 62.2% y-y to RMB34.649 billion with the EPS of RMB1.90, up 48.4% y-y after the dilution due to double the amount of total capital shares;
-According to the lasted data by China Insurance Regulatory Commission (CIRC), as at the end of Sep 2015, the premiums of the Life and P&C insurance of Ping An increased by 18.58% and 15.73% y-y to RMB163.992 and 121.638 billion respectively;
-Total assets increased stably by 15.6% to RMB4.63 trillion compared with the end of 2014, and net assets grew 14.4% to RMB331.19 billion;
-The synergy effects appeared under the current strategy of “Banking + Insurance + Investment”, and will realize one-stop comprehensive service under mobile platform. Currently, the Group's comprehensive business structure is the main competitive advantage;
-Recently China Pingan will announce 3Q results, we believe its premiums would maintain at the double-digit growth, but considering the large market volatility in 3Q, investment income growth would slow down obviously. However, the share price decreased significantly recently, and the valuation is attractive now, therefore we give China Pingan's 12-m TP to RMB65.00, 93% higher than the current price, equivalent to 15.6xP/E and 2.0xP/B in 2016 respectively. Maintain “Buy“ rating. (Closing price as at 23 Oct 2015)
Stable profit growth
China Ping An's large profit growth is mainly benefited from the stable increase of premiums. As at the end of Sep 2015, the premiums of the Life and P&C insurance of Ping An increased largely by 18.58% and 15.73% y-y to RMB163.992 and 121.638 billion respectively.
Due to the development of the market, China Pingan's other businesses also increased sharply. By the end of Jun, total amount of the Group's investment portfolio reached to RMB1.64 trillion, up 11.2% compared with the end of 2014. Net interest incomes increased by 27.4% to RMB 40.622 billion, however, we expect it will go down obviously in 3Q2015.
Meanwhile, the Group's banking business developed strongly, in 1H2015, net profit of the banking business grew 15% to RMB11.585 billion, but the asset quality went down obviously, the NPL ratio increased from 1.02% in 2014 to 1.32%, and the NPLs amounted to RMB15.729 billion, up 50% approximately. We expect the Group's asset quality would go down continually in future, and in 3Q, the NPL ratio would be around 1.50%-1.60%.
Overall, Ping An's operating performance met our expectations benefited from the stable growth of premiums and other main businesses. We still hold the optimistic view on the development of the sector, and the insurers` premiums would increase stably and investment gains will also increase obviously in 4Q2015. Therefore, we give China Pingan's 12-m TP in A Shares to RMB65.00, 93% higher than the current price, equivalent to 15.6xP/E and 2.0xP/B in 2016 respectively, the valuation is attractive. Recommend Buy rating.
Risk
Lower-than-expected growth of main business incomes;
Share price decreases sharply affected by the market environment in the short run.
FINANCIALS
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