The sharp drop in the market value of Ping An due to investor mistrust of Chinese uncertainties

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The Chinese company Ping An Insurance (Group) Co. has long argued that it should be treated as a high-growth technology company rather than a seller of life insurance policies. After a $ 90 billion drop in market value, it is now more priced than a real estate developer at a time when the country’s real estate industry is not in favor.

This year’s 40% drop in equities brought its price-to-earnings ratio down to just over 6, slightly more than the Shanghai Stock Exchange’s real estate index multiple of 5.7, and far below 20 and over. commissioned by insurance companies Berkshire Hathaway Inc. and AIA Group Ltd. This was fueled by a botched real estate investment, Beijing’s tech crackdown that hit the value of its fallout and a plummeting life business.

Ping An’s business model relies on investing in online platforms such as healthcare site Good Doctor and Autohome Inc. to attract customers for its policies and wealth management products. These users provide data to refine his insurance business and generate income that he then invests in other sites. Except that its core life business is now in trouble, and a multibillion-dollar investment in the China Fortune Land Development Co. has raised concerns about Ping An’s exposure to other developers. .

“The technology had been a great selling point for Ping An in recent years, but might have lost some of its luster,” said Steven Lam, Hong Kong-based analyst at Bloomberg Intelligence. “Many international investors are now allergic to the uncertainties of the Chinese market. “

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Despite all of its success with technology, including chatbots and artificial intelligence that settle auto insurance claims in minutes, the pandemic and aging population have eroded consumers’ willingness to sign up for policies. long term life insurance.

The life division generated 53% of Shenzhen-based Ping An’s revenue in 2020, when the value of new business plunged 35%. The key metric fell 12% in the first half through June, as its agent strength declined 14% to less than 878,000.

“Technology can bring efficiency, but the problem is more with demand,” Lam said. “How can AI create demand? “

As Ping An turns to technology to boost the productivity of top salespeople and get rid of underperformers, he also has to deal with the changing employment landscape in China. The average monthly income of a Ping An agent fell 8% to 5,793 yuan ($ 897) last year. This may make him less financially attractive than delivering food to Meituan.

“We expect Ping An to stabilize its agent strength first and demonstrate higher productivity for the premium agent group,” said Iris Tan, senior analyst at Morningstar in Shenzhen. It should also allay market concerns about real estate investments, she said.

Ping An said the market does not fully understand his efforts to reform life insurance and other capabilities, citing the share buybacks as a sign of management confidence.

“Fluctuations in the share price are temporary, but Ping An’s strategy is clear, its finances prudent and its business stable,” the company said in response to questions from Bloomberg News.

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The pain of a sweeping crackdown on leveraged Chinese developers has already been reflected in Ping An’s results, with write-downs on China Fortune erasing 20.8 billion yuan from first-half profits. The insurer spent $ 2 billion for a 20% stake in 2018 and now owns 25% of a company that has become the first Chinese developer to default since Beijing tightened controls last year. The crackdown on real estate increases risks on an asset class long sought after to match long-term insurance liabilities.

Property exposure

“Ping An has some real estate exposure and it is difficult for the market to assess it,” said Zhang Qingyun, deputy managing director of China Vision Capital Management, a Beijing-based private fund.

Ping An’s real estate investments are under investigation by the China Banking and Insurance Regulatory Commission, Reuters reported in August. In response, the company said it strictly follows regulatory rules, adding that an investigation of real estate investments “has no factual basis.”

The Ping An Good Doctor app, operated by Ping An Healthcare & Technology Co., a unit of Ping An Insurance Group Co., is displayed in the App Store on an iPhone from Apple Inc. in an arranged photograph taken in Hong Kong, China, Wednesday May 2, 2018.

Getting rid of perceptions on property is proving to be a challenge, especially with companies like China Evergrande Group dominating the headlines. In August, Ping An said 4.8% of its insurance investment fund is in real estate while the top-rated analyst on the stock estimates the number to be more than double that figure, although that Ping An disputes the evaluation.

“We are more pessimistic than the market about Ping An investment exposure,” said Leon Qi of Daiwa Capital Markets in a September 24 report. Qi’s recommendation has generated the best stock returns over the past year according to Bloomberg Absolute Return Rankings. Qi, who assesses ownership of the shares, was not available for comment on Bloomberg News.

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Other analysts are more bullish with 31 of 33 followed by Bloomberg recommending investors buy its Hong Kong-traded shares. The restructuring of China Fortune has gone better than expected and is expected to spare Ping An further write-downs and may even allow it to recoup some earlier losses, analysts at CSC Financial Co. wrote in an Oct.7 report.

In the past, Ping An has reaped profits by selling some of its technology investments in initial public offerings, including Lufax Holding Ltd. and Ping An Healthcare and Technology Co., the trade name of Good Doctor. But with Beijing’s crackdown on the private sector, shares of its tech investments all collapsed in 2021, just as the path to overseas IPOs for the other startups it has incubated becomes murkier.

Ping An knows that defeating skeptics will be critical as investors increasingly take a hard line on missed opportunities.

“The market appears to be overly worried about Ping An,” said Zhou Min, founder and portfolio manager of Everest Growth Capital hedge fund. “Investors will have to wait and see when the fundamentals of the company really improve.”

Top photo: The Ping An International Financial Center in Beijing. Photo credit: Qilai Shen / Bloomberg.

Copyright 2021 Bloomberg.

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