Ping An's US$90b fall grounds one-time China high flyer

[SHANGHAI] China's Ping An Insurance has long argued it should be treated like a high-growth technology company instead of a seller of life policies.

After a US$90 billion plunge in its market value, it's now priced more like a property developer at a time when the country's real estate sector is out of favour.

This year's 40 per cent stock dive has cut its price-to-earnings ratio to just above 6, slightly more than the Shanghai Stock Exchange Property Index's multiple of 5.7 and a far cry from the 20-plus commanded by insurance peers Berkshire Hathaway and AIA Group. That's been fuelled by a botched real estate investment, Beijing's technology crackdown that hit the value of its spinoffs and a slumping life business.

Ping An's business model relies on investing in online platforms such as health care site Good Doctor and Autohome to draw in customers for its policies and wealth management products.

Those users provide data to refine its insurance business and generate revenue it then plows into other sites. Except its backbone life business is now struggling and a soured multibillion-dollar investment in China Fortune Land Development has raised concerns about Ping An's exposure to other developers.

"Tech had been a very good selling point for Ping An in recent years, but might have lost its luster," said Steven Lam, a Hong Kong-based analyst with Bloomberg Intelligence. "Many international investors are now allergic to the uncertainties in China market."

For all its success with technology, including chatbots and artificial intelligence that settle car insurance claims within minutes, the pandemic and an aging population have eroded consumer willingness to commit to long-term life policies.

The life division generated 53 per cent of Shenzhen-based Ping An's revenue in 2020, when the value of new business dived 35 per cent. The key measure fell 12 per cent in the first half to June as its agent force shrank 14 per cent to less than 878,000.

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

While Ping An is turning to technology to bolster the productivity of top salespeople, and getting rid of poor performers, it also has to contend with China's shifting job landscape. The average monthly income for a Ping An agent fell 8 per cent to US$897 last year. That can make it less financially appealing than delivering food at Meituan.

"We expect Ping An to first stabilise its agent force and demonstrate higher productivity for the premium agent group," said Iris Tan, a senior analyst at Morningstar in Shenzhen. It also needs to ease market concern about property investments, she said.

Ping An said the market doesn't full understand its efforts to reform life insurance and other capabilities, citing share buybacks as a sign of management's confidence.

"The fluctuations in the stock price are temporary, but Ping An's strategy is clear, its finances prudent and business stable," the company said in response to questions from Bloomberg News.

The pain from a sweeping crackdown on China's highly leveraged developers has already been reflected in Ping An's results, with impairments on China Fortune erasing 20.8 billion yuan (S$4.36 billion) from first-half earnings. The insurer spent US$2 billion for a 20 per cent stake in 2018 and it now owns 25 per cent of a company that became the first Chinese developer to default since Beijing tightened controls last year. The crackdown on real estate is pushing up risks on an asset class long sought after to match long-term insurance liabilities.

"Ping An has quite some property exposure and it's difficult for the market to gauge," said Zhang Qingyun, deputy general manager of China Vision Capital Management, a Beijing-based private fund.

Ping An's property investments are being investigated by the China Banking and Insurance Regulatory Commission, Reuters reported in August. In response the company said it has been strictly following regulatory rules, adding a probe on property investments "had no factual basis."

Shaking off perceptions about property is proving a challenge, especially with companies such as China Evergrande Group dominating headlines. In August, Ping An said 4.8 per cent of its insurance investment fund is in real estate while the top-rated analyst on the stock puts the number at more than double that figure, although Ping An disputes the assessment.

"We are more pessimistic than the market on Ping An's investment exposure," Leon Qi at Daiwa Capital Markets said in a Sept 24 report.

BLOOMBERG