1Q18 results posted lower NBV and higher NBM
1) 1Q18 shareholders’ net profit totalled RMB25.7bn, up 11.5% YoY. ROE (not annualized) came in at 5.3%; 2) Life and health NBV came in at RMB19.9bn, down 7.5% YoY. However, NBM rose from 27.2% in 1Q17 to 30.2% in 1Q18; 3) P&C insurance posted a stable combined ratio of 95.9%, same as 1Q17. Net profit of P&C segment dropped because of lower investment incomes. In our view, 1Q18 NBV growth is slightly lower than expected. However, we think it is mainly due to the decrease in low-margin business as overall NBM increased 3.0pps YoY. We believe Ping An will maintain its competitive strength in life and health market, and expect its NBV growth to improve at 2018-end.
1) The mgmt. indicated life product structure improved in 1Q18 as NBM increased; 2) the mgmt. is still confident that NBV growth will improve towards 2018-end, and still targets a positive NBV growth for 2018; 3) the mgmt. still targets a double-digit growth in life agent headcount in 2018; 4) despite stable combined ratio, the mgmt. is closely watching the development of P&C market as competition may further increase due to marketization of automobile insurance; and 5) Lufax, Autohome, and OneConnect are contributing positive profit for the group.
Valuation and risk
The company is trading at ~2.3x 2018E P/B. TP (currently HK$113.4) and financial forecasts are under review. We maintain our Buy rating on the company, given that 1) there is enhanced life product structure despite negative NBV growth; also the mgmt. is still targeting positive growth in NBV and life agent headcount in 2018; 2) life insurance segment may benefit from the turnaround of 750D-MA for the 10Y government bond (negatively impacted life operating profit by ~29% in 2017); and 3) with its extensive agent network, Ping An has the competitive advantage in selling protection-type life insurance. Key catalyst: improved NBV growth at 2018-end. Key downside risks: adverse capital market, lower-than-expected NBV growth.