Turn crises into opportunities: Ping An

One little trivia to start.

Which building is the tallest in ShenZhen and the second tallest in the whole of China? 

Answer, it is the Ping An International Finance Center.

When I started out gaining knowledge on investing in early 2019, Value Invest Asia was one channel that I turned to.  I was introduced to Ping An Insurance (Group) Co. of China Ltd in their stock guide for 2019.

At that time my focus was on Singapore stocks, so I gave Ping An Insurance a miss.  Even so, I’ve always wanted to accumulate some Ping An shares.

In recent months, Ping An’s share price came under correction (and I would say undervalued) and presented an opportunity for me to snap up some for my China/HK portfolio.


Ping An is a dominant financial services titan with an edge in tech investments. Ping An ranks 6th among global financial institutions. 

Ping An started as an insurance outfit out of ShenZhen, and it still remains one of the most successful insurance company in China and the largest insurer globally by market capitalisation.  

Ping An’s operation is anchored by its industry-leading life and health insurance business.  In addition to that, Ping An also offers other insurance, banking and fintech operations that amalgamate to form a robust financial services ecosystem.

As much as Ping An is a financial services company, it is also a technology company.  Ping An has been devoting much focused attention to areas such as blockchain, AI, and cloud computing.  Ping An’s tech programs cover areas such as urban development (Smart City Business) to healthcare (HealthKonnect, Good Doctor) to automotive (Autohome) to wealth management and finance (Lufax, OneConnect).


Ping An pursues a 2-pronged strategy, namely the “finance + technology” and the “finance + ecosystem”, to advance its business.

Ping An provides financial products and services for 200 million retail customers and 516 million internet users. 

In 2019, Ping An acquired 36.57 million new customers, 14.90 million or 40.7% of whom were sourced from internet users within the Group’s five ecosystems (financial services, health care, auto services, real estate services, and smart city services). 

Through robust data-driven operations, Ping An anticipated trends and made timely decisions to secure first-mover advantages.  Ping An adheres to the maxim “Speed is Paramount”.

Results and Ratios (before pandemic)

In the latest annual report (2019), Ping An reported the following:

1. Total market value: About RMB1,500 billion.

2. Operating profit (Group): Grew 18.1% year on year to RMB132,955 million (Operating ROE=21.7%).  

3. Net profit (Group): Rose 39.1% year on year to RMB149,407 million. 

4. RETAIL BUSINESS: Operating profit increased by 25.7% year on year to RMB122,802 million (accounting for 92.4% of the Group’s operating profit attributable to shareholders of the parent company).  As of 31 December 2019, 73.71 million retail customers held multiple contracts with different subsidiaries, up 19.3% from the beginning of 2019, accounting for 36.8% of total customers.  In 2019, the Group acquired 36.57 million new customers, of which 40.7% were sourced from internet users within the Group’s ecosystems.  The Group’s internet users increased by 16.2% from the beginning of 2019 to 516 million.

5. LIFE & HEALTH INSURANCE BUSINESS:Operating profit went up 24.7% year on year to RMB88,950 million(Operating ROEV=25.0%).

6. PROPERTY & CASUALTY BUSINESS: Operating profit increased by 70.7% to RMB20,952 million (once again achieved a better-than-industry combined ratio of 96.4%).  Through the service of “Ping An Motor Insurance Trust Claim”, the annual average turnaround time of a single claim is shortened to 3 minutes!

7. BANKING BUSINESS: Maintained stable and healthy business growth with net profit increasing by 13.6% year on year to RMBB28,195 million.  In meeting its de-risking goals, the non-performing loan ratio dropped by 0.10 pps and the provision coverage ratio grew by 27.88 pps from the beginning of the year. 

8. TECHNOLOGY BUSINESS: Yielded good results with total revenue growing by 27.1% year on year to RMB82,109 million. Ping An has built a 1st-class technology team of nearly 110,000 technology business employees, 35,000 R&D employees, and 2,600 scientists.  As of 31 December 2019, Ping An’s technology patent applications reached 21,383 (up from 9112 from the beginning of 2019).  Globally, Ping An ranked first in fintech and second in healthtech by published patent applications. 

9. AI TECHNOLOGY: Ping An applied an internally developed AI interview robot to 100% of sales agent recruitment interviews in 2019.  AskBob, the agents’ exclusive smart personal assistant, has served agents 340 million times since its go-live. Ping An used an AI-powered image-based loss assessment and precise customer profiling technologies to provide nearly 90% of auto insurance claimants with online services, and handle almost 25% of the claims through smart loss assessment. The speech robots provided services 850 million times in 2019 in 83% of financial sales scenarios and 81% of customer services scenarios across the Group, cutting the annual cost of call centre agents by 11%. 

10. ONECONNECT: OneConnect, an associate company of Ping An, is a leading technology service platform that focuses on providing financial technology solutions for small and medium-sized banks.  OneConnect built four service platforms, namely Direct Bank Cloud, Financial Cloud for small and micro enterprises, Interbank Asset Transaction and Personal Credit Investigation based on big data, blockchain, financial Cloud, intelligent finance and other new technologies. OneConnect’s products cover all the major banks, 99% of the urban commercial banks and 52% of the insurers in China. OneConnect was granted a virtual banking license by the Hong Kong Monetary Authority.  OneConnect grew its total revenue by 64.7% year on year to RMB2,328 million. 

11. SMART HEALTH CARE SERVICES: Covers 14,000 medical institutions. AskBob, Ping An’s self-developed diagnosis and treatment assistant tool, was used 11 million times by 260,000 doctors in 2019. 

12. 15-year Average ROE: >15%

13. 15-year Basic EPS CAGR: >24%

14. 15-year Asset CAGR: >26%

15. 15-year Dividend CAGR: >25%; 40.1% over the past 5 years

16. Fair Value: Estimated to be HK$85.45 (Thus, I’m comfortable with any price below HK$85)

Ping An is really a behemoth of a company.  Its business model is extensive and is well diversified.  Ping An achieved sustained and steady overall and core business growth from year to year. 

Even so, during the pandemic period, the business operating environment for Ping An has been challenging.  Ping An highlights challenges regarding offline operations, rising credit risk, volatile equity markets and fading interest rates, all of which are unfavourable conditions being driven by the Covid-19 crisis.

Results and Ratios (during pandemic)

In the latest Q1 report (2020), Ping An reported the following:

1. Operating profit (Group): Climbed by over 5% year on year to RMB35,914 million  

2. Net profit (Group): Dropped 42.7% year on year to RMB26,063 million. 

3. RETAIL BUSINESS: As of 31 March 2020, Ping An’s total retail customers grew to 204 million. In the first quarter of 2020, the Group acquired 8.71 million new retail customers, 34.7% of whom were sourced from internet users within its five ecosystems. The Group’s internet users increased by 3.7% from the beginning of 2020 to 534 million. 

4. LIFE & HEALTH INSURANCE BUSINESS:Operating profit went up 23.7% year on year to RMB24,302 million.  Ping An’s traditional offline operations and high-value protection business were affected by the COVID-19 epidemic.  To mitigate the challenging circumstances, the Company leveraged technologies to develop innovative online operating models and accumulate customer resources for post-epidemic business growth. 

5. PROPERTY & CASUALTY BUSINESS: Recorded premium income of RMB72,589 million (up 4.9% year on year).  Amid the COVID-19 epidemic, Ping An Property & Casualty integrated online services and launched “One-click Claims Services,” thus enabling non- physical-contact claim settlement anytime and anywhere. As of March 31, 2020, registered users of the “Ping An Auto Owner” app exceeded 100 million users (growth of nearly 12% from the end of 2019).

6. BANKING BUSINESS: Revenue and net profit rose 16.8% and 14.8% year on year respectively. The provision coverage ratio of non-performing loans was further strengthened by 17.23 pps from the beginning of 2020.  Core tier 1 capital adequacy ratio of 9.2%  is comfortably above the regulatory minimum (7.5%).  Amid the COVID-19 epidemic, Ping An Bank quickly resumed business through online digital operations. Ping An Bank’s impressive performance came despite the Chinese economy posting a 6.8% GDP contraction in the first quarter as a result of intensive lockdown measures imposed by Beijing.

7. TECHNOLOGY BUSINESS: Revenue increased by 6.0% year on year to RMB19,844 million. As of March 31, 2020, Ping An’s technology patent applications increased by 2,550 from the beginning of 2020 to 23,933, more than most other international financial institutions’. 

During this time of the pandemic and growing instability in the global economy, most businesses face a great deal of challenges.  Ping An is no exception.

In a statement put out in April, 2020, Ping An elucidated, “Affected by the epidemic, in the short term, the offline business development of the insurance business will be hindered, investment income will decline significantly, credit risks will increase, and the demand for financing will decrease … However, in the medium and long term, business opportunities and challenges will coexist. The demand for insurance and financial services will rebound. Moreover, epidemic prevention and containment highlights the significance of technological empowerment, spurring technological application and spawning development opportunities for health services. Faced with growing instability of the global economy and financial markets, Ping An will turn crises into opportunities.

Turn crises into opportunities … I like that.

In the first quarter of 2020, Ping An has proven itself to be able to turn crises into opportunities.  In spite of the pandemic and over-all poor economic conditions and market sentiments, Ping An has been able to sustain growth in all 5 of its core businesses, even though the percentage of growth and profitability is substantially lower than the same quarter a year ago.

Why did I buy Ping An?

A Huge Growth Sector in China: China, as a result of its large ageing population, a growing middle class with rising personal income, economic system reform and lack of publicly funded social insurance, has considerable potential for insurance industry growth.  

China is estimated to have the largest health protection gap in the world.

What does this gap in health protection refer to?  

According to a report titled “Narrowing China’s Health Protection Gap” by Robert Burr and David Zhang, the gap is defined as “the amount of financial stress arising from unforeseen, direct out-of-pocket medical expenses and the estimated cost of non-treatment due to limited ability to afford.”*

These expenses are not covered by other payers such as insurance, social security, or government funding.  Families are thus forced to take out money from their daily living funds or savings or loans to fund such unforeseen expenses.  Lack of financial resources could lead to non-treatment and thus potentially exposing such households to greater health risks and worsening health conditions.

In view of this situation in China society, coupled with the extremely low insurance penetration (2.3% vs 5.1% in developed countries) and insurance density, Ping An is well-positioned to take advantage of this health protection funding needs for millions of people and seize the potential to gain more market share.

Over the last 15 years, Ping An’s insurance business has seen its embedded value grow at more than 25% CAGR.

What is embedded value?  

It is the present value of all future premium income less insurance expenses generated by the existing book of business. Due to the long-term nature of life insurance, future premiums and earnings are often “locked-in” when the contract is written.  Hence, the trajectory of embedded value is more demonstrative of the quality and current performance of a life insurance operation.  This speaks volume of the quality and profitability of the insurance business that Ping An’s agents are producing. 

Ping An’s insurance business, the crown Jewel of Ping An group which accounts for about two-thirds of the group’s operating profit after tax, is on a sure path of growth with many more spaces of growth in life and property+casualty markets to be explored and exploited.

It is true that Ping An’s short term performance has been negatively impacted during this pandemic period.  However, I believe the widespread nature of Covid-19 has raised awareness across the country for both protection-oriented life and health insurance, and Ping An is in a good position to meet these insurance needs. 

An Insurance Institution masquerading as a Tech Titan: One engine of growth for Ping An is what it calls “Technology-Powered Business”.  Along side with Alibaba and Tencents, Ping An is one of the first large Chinese conglomerates to harness the power of technology, especially big data, A.I., and cloud computing.  

Ping An ascribes great importance to developing core technologies and securing proprietary intellectual property rights, and constantly increasing technological R&D investments. 

Over the past decade, Ping An has developed or purchased several new tech-related businesses.  These businesses employ innovative technologies that make them not only valuable in their own right, but also help compliment and enhance Ping An’s other core business operations in insurance and banking.

Some Ping An’s Technology businesses:

1. Good Doctor: AI-aided in-house medical teams, and provides users with online-merge-offline services by integrating offline health care networks.  During the Covid-19 epidemic, Ping An Good Doctor provided 24/7 online consultation services, and attracted over 1,000 million visits to its online platform. 

2. HealthKonnect: an information software platform that provides integrated medical management solutions covering hospitals, doctors, pharmacies, and insured members. 

3. Autohome: the largest online auto-buying platform in China for dealers and used car sellers.

4. OneConnect: China’s leading technology-as-a-service cloud platform.  Its end-to-end technology applications and business services enable digital transformations by helping financial institutions increase revenues, manage risks, improve efficiency, enhance service quality and reduce costs.  OneConnect will operate a virtual bank, called OneConnect Bank, in Hong Kong.  OneConnect bank is one of eight firms that has been given a virtual bank licence by the Hong Kong Monetary Authority since March 2019. 

5. Lufax: China’s largest peer-to-peer lending and retail lending technology platform.

I like how Ping An is able to use these technologies and harness data on consumer buying patterns to improve its product offerings to meet specific consumer needs and to cross-sell customers.  

For example, it can market its insurance products to customers of Good Doctor, or offer auto insurance to Autohome customers.  

With 110,000 technology business employees, 35,000 R&D employees, and 2,600 scientists under its employment, I’m sure there are currently numerous technology businesses that are at various stages of incubation and growth.  These new businesses will eventually be marketed to improve Ping An’s traditional businesses.

Ping An is able to create advantages for itself by leveraging partnerships and alliances within its ecosystems to continuously adapt its product offerings to a changing customer base with ever-changing needs.  

Given its dominant position in China’s insurance industry and its diversified business in financial/wealth management and in technological development, I find Ping An to be a valuable growth counter in my portfolio.  That it also pays a dividend (2.9% based on my purchase price of HKD80.20) makes the investment all the more better.  Given its scale and asset size, Ping An will survive the current economic downturn … I don’t doubt it.

I have already invested in China Life Insurance.  And now I’ve also invested in Ping An Insurance.  With these two counters, I am exposing myself to the fast-growing insurance industry of China.  Only time will tell if my investment in these two insurance titans of China will pay off.

* https://www.soa.org/globalassets/assets/library/newsletters/newsdirect/2019/may/2019-newsdirect-iss78-burr-zhang.pdf 

Disclaimer: I am only an amateur investor and nothing you read here on my blog constitutes financial advice.  I write here to detail my investments, strategies, and analyses.  Feel free to read at your own risk.  Should you need financial advice, consult a licensed financial advisor.