On the evening of April 23, Ping An of China released its performance report for the first quarter of 2024.

Financial reports show that in the first quarter, the company's operating profit attributable to shareholders of the parent company was 38.709 billion yuan, down 3.0% year on year; net profit attributable to shareholders of the parent company was 36.709 billion yuan, down 4.3% year on year. Among them, the three core businesses of life insurance and health insurance, property insurance, and banking resumed growth. The total operating profit of the three businesses attributed to shareholders of the parent company was 39.816 billion yuan, an increase of 0.3% over the previous year.

It is easy to see that with the improvement of macroeconomic fundamentals and the company's continued deepening operations, Ping An is gradually realizing growth in performance and value. Benefiting from this, Ping An's A share price rose nearly 2% and H share price rose nearly 3% on April 24.

Looking at this quarterly report in depth, Ping An presented many highlights of performance. Among them, the company's recent adjustments to its business strategy and development plan have attracted even more attention from the outside world.

So what is the meaning behind this? You might want to explore this further.

1. Steady operation, core business operating profit returns to a positive growth channel

In the first quarter of 2024, Ping An achieved premium income of 264.422 billion yuan from the original insurance contract, an increase of 1.6% over the previous year.

Meanwhile, in the first quarter of this year, five listed insurers, including Ping An of China, China Life Insurance, China Insurance, China Taibao, and Xinhua Insurance, achieved a total premium income of 1066,423 billion yuan, an increase of 0.96% over the same period last year, which is lower than Ping An's premium growth rate. Specifically, the premium growth rate of the five listed insurers was “three increases and two drops,” and Ping An's premium growth rate ranked second, second only to China Life Insurance.

Overall, this performance has exceeded market expectations, reflecting Ping An's steady undertone as a leading insurer.

More importantly, the operating profit of the core business has improved markedly. In the first quarter, Ping An's three businesses of life insurance, health insurance, property insurance, and banking combined achieved positive growth in operating profit attributable to shareholders of the parent company.

It is worth mentioning that Ping An management stated at the 2023 annual results conference that “the decline in operating profit was a one-off factor effect,” and that operating profit returned to a positive growth channel in the first quarter, which initially verified this judgment.

Specifically, at the business level, life insurance is the core of Ping An, and this time it has also performed well.

In the first quarter of 2024, the new business value of the life insurance and health insurance business reached 12.890 billion yuan, a year-on-year increase of 20.7% on a comparable scale. As one of the core indicators of the life insurance business, Ping An's new business value continued the high growth trend in 2023, and also laid a solid foundation for performance growth throughout this year.

The reason behind this is naturally inseparable from Ping An's in-depth channel and product reforms over the past few years.

The reforms in the agent channel have had the most remarkable results. The number of company agents at the end of the first quarter was 333,000, down 4 percentage points from the beginning of the year, and the overall scale stabilized.

More importantly, the proportion of highly qualified, highly educated, and highly professional elite agents continued to rise, and the proportion of “excellent +” in new manpower increased 11.0 percentage points year on year, driving continuous optimization of the overall agent channel management quality. In the first quarter of 2024, the per capita new business value of agent channels increased 56.4% year on year, and the new business value rate reached 22.8%, up 6.5 percentage points year on year on a comparable scale.

Continuous innovation in products is also an important reason why Ping An's performance continues to grow.

In response to the diversified needs of customers, Ping An has built three product service lines: “insurance+health management”, “insurance+high-end pension”, and “insurance+home care”, building a differentiated competitive advantage.

In terms of health care, by the end of the first quarter of 2024, Ping An Life Insurance's health management had served more than 10 million customers; in terms of home pension, Ping An's home care service had covered 54 cities across the country, with a cumulative total of nearly 100,000 people qualified for home care services; in terms of high-end pension, Ping An's high-end pension brand “Zhenyinian” had established itself in Shenzhen, Shanghai, Hangzhou, Foshan and other places.

2. How do you understand that Ping An is building an upgraded version of the 'Wells Fargo Plus United' model?

Earlier, when Ping An released its 2023 annual report, the company's strategic wording changed, changing from “comprehensive finance+healthcare” to “comprehensive finance+medical care”. Although it seemed like a minor adjustment of only two words, there was deep meaning behind this.

Judging from this quarterly report, Ping An also spent a large chapter introducing Ping An to build a new engine for value growth through medical care and pension. According to management's previous presentation at the annual results meeting, the “comprehensive finance+medical care” strategy is the core competitiveness to safely cope with the current economic environment, and is an upgraded version of the “Wells Fargo Plus Joint Health” model. Through technological empowerment and organizational coordination, synergy effects have been further demonstrated, driving the continuous improvement of the value of safety in China.

As we all know, Wells Fargo is one of the largest banks in the world. It has diversified financial services, covering various business areas such as retail banking, commercial banking, investment banking, and wealth management. Wells Fargo's business model is actually quite different from Ping An's comprehensive financial model. Both focus on providing one-stop financial services to achieve close linkage between business lines and product lines, thereby creating cross-selling opportunities, continuously improving customer stickiness, and tapping into customer base potential.

In the quarterly report, Ping An mentioned about the comprehensive financial business, that it is committed to building a warm financial service brand and providing a one-stop comprehensive financial solution that “saves worry, time, and money”. At the data level, Ping An's customer potential and synergy effects are also continuously being unleashed. By the end of March 2024, Ping An had nearly 234 million individual customers, an increase of 1.0% over the beginning of the year; the average number of customer contracts reached 2.94. Since the end of 2019, while the number of Ping An customers has increased by 17.9%, the number of contracts per customer has increased by 10.1%.

Similarly, as the world's largest health insurance company, UnitedHealth once became the target of domestic competition for imitation of both insurance and medical-related companies. Judging from its business model, the core is to integrate multiple chains such as payment, service, and medical care through the “insurance+healthcare service” model to fully integrate medical ecosystem resources and enable insurance business collaboration. The medical and pension ecosystem built by Ping An is now also continuously collaborating with its comprehensive financial business to continuously open up value growth points.

In this regard, the Quarterly Report also specifically mentioned that Ping An's healthcare and pension ecosystem has not only created independent direct value, but also created huge indirect value, empowering the main financial industry through differentiated “products+services.”

At the data level, as of the end of March 2024, out of Ping An's nearly 234 million individual customers, more than 63% were using the services provided by the medical and pension ecosystem at the same time. The average number of customer contracts was about 3.37, and the average customer AUM reached 57,600 yuan, which is 1.6 times and 3.6 times that of individual customers that do not use medical and pension ecosystem services, respectively.

From the user's point of view, Ping An's layout actually fits the “ratchet effect.”

For consumers, once consumption habits are formed, they are often irreversible, that is, it is easy to adjust upward, but difficult to adjust downward. It's like people who are now used to scanning codes to pay, often find it inconvenient to pay back in cash. Getting used to the one-stop service experience, then going back to “breaking the leg” for each business alone can be compared to becoming extremely irritable.

Today, with the support of Ping An's complete “comprehensive financing+medical care” ecosystem, the release of this effect will also lead to exponential growth in user stickiness and user value potential. As follow-up strategies continue to deepen, positive feedback at the business level and user level will also become stronger, bringing greater opportunities for value growth for Ping An.

3. Analysis of future market opportunities in the insurance sector, waiting for the revaluation of the value of Ping An

From the perspective of the capital market, the cost performance ratio of the insurance industry is gradually showing against the backdrop of continuing to rise in expectations for the restoration of both ends of assets and liabilities.

The first is the asset side.

In recent years, the determination of the supervisory authorities to cultivate a good capital market ecology has become more prominent. In particular, the recently introduced “Nine Rules of the New Country” has strengthened investors' confidence in the high-quality development of the capital market in the future. Referring to the trend of the A-share market after the release of the “National Nine Rules” in the past two times, many investors' expectations for the subsequent market to break out of the slow bull market have also risen.

In this context, the foundation for medium- to long-term capital, represented by insurance capital, has been consolidated. At the same time, improving the market environment and warming climate will also directly affect insurers' return on investment, which is beneficial to insurance companies' asset-side recovery.

Then there's the debt side.

In the short term, despite experiencing a change in the predetermined interest rate from 3.5% to 3%, against the backdrop of bank deposit interest rates falling to 2.75% and interest rates on ten-year treasury bonds as low as 2.24%, insurance companies are still very attractive.

Furthermore, as far as Ping An is concerned, the guaranteed interest rate for dividend insurance is only 2.5%, but Ping An's settlement interest rate has been above 4% for the past 10 years, so its competitiveness is self-evident.

In the long run, there is still plenty of room for development in China's insurance industry. Whether it is insurance density or insurance depth, not only is there a considerable gap between our country and developed countries, but it has not even surpassed the world average. Under the influence of the aging population trend, the increase in insurance penetration rate needs to be accelerated.

However, in this process, the differentiation of the insurance industry will also unfold simultaneously. Only insurers that actually have a differentiated advantage can reap most of the market dividends under the influence of the “Matthew effect.” Ping An, which has built a towering moat through a “comprehensive finance+healthcare ecosystem” two-wheel drive strategy, must be one of them. At the same time, based on this model, the company also has the possibility of revaluation.

Furthermore, continued growth in performance has brought stable and predictable dividends to Ping An investors, which is particularly rare in the current context of high capital market volatility.

Ping An's annual dividend for 2023 was 2.43 yuan in cash per share, an increase of 0.4% over the previous year. The cash dividend ratio calculated based on operating profit attributable to shareholders of the parent company was 37.3%, and the dividend amount increased for 12 consecutive years. Meanwhile, according to the shareholder return planning announcement issued earlier, if the annual distributable profit within the next three years is positive, the annual dividend amount will be 20%-50% of the net profit attributable to shareholders of the parent company after the previous year's audit.

4. Conclusion

Overall, the report card handed over by Ping An is remarkable, and the strategic layout signals revealed to the outside world are even more clear. Compared to Wells Fargo's and UnitedHealth models, Ping An's resource control, strategic depth, and technological leadership will actually make it transcendent. Currently, by continuing to push forward life insurance reform and deepening the “comprehensive financing+healthcare” strategy, Ping An is continuously optimizing its business structure while also laying a solid foundation for long-term development.

After the release of the first quarterly report, Ping An was also favored by many institutions, including CICC and Dongwu. Most institutions said in China Research Reports that the company's performance exceeded expectations.

Among them, according to the China Merchants Non-Bank Research Report, in the context of strong supply and demand for savings insurance, Ping An Life Insurance business will open “red” as scheduled in 2024, and the industrial insurance business has a steady development trend; asset-side OCI shares account relatively high, which not only can provide continuous dividend cash flow, but also has a strong ability to withstand market fluctuations. Looking ahead to the whole year, the debt-side boom is worry-free, and marginal improvements on the asset side are expected to bring about a significant recovery in profits and stock prices.

According to the opinion of Dongwu Securities, in the first quarter report, Ping An's performance and value growth slightly exceeded expectations, mainly due to proper comprehensive debt cost control under intensive cultivation. The company's new business value (NBV) continued to recover under a high base, and life insurance operating profit (OPAT) increased year-on-year. Maintain the company's “buy” rating.

The CICC Research Report reiterated the recommended rating. It is expected that the investment side base will decline from 2Q24, the debt side may further reduce pricing interest rates in the near future, and Ping An's current profit and subsequent trends are expected to improve further; in addition, it is recommended to focus on the subsequent situation in the asset management sector. If the company's depreciation pressure continues to improve during the subsequent reporting period, it is expected to further open up space for the company's valuation repair.