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Ping An Insurance (Group) Co., China’s second-biggest insurer, fell to the lowest in more than a month in Hong Kong trading after reporting profit that trailed analysts’ estimates.
The shares fell 1.1 percent to HK$60.45 at the close, the lowest since Feb. 6. The stock is down 13 percent this year. Net income climbed 40 percent to 28.2 billion yuan ($4.6 billion) from 20.1 billion yuan [$3.2685 billion] a year earlier, the company said yesterday. That compared with the 28.9 billion yuan [$4.7 billion] median estimate of 17 analysts surveyed by Bloomberg.
The magnitude of pricing pressure, as indicated in the insurer’s lower-than-forecast life insurance earnings and higher reserves, was a “surprise,” while the profit growth at the banking unit was mainly driven by a delay in the recognition of bad-loan charges, according to Sanford C. Bernstein Co. analysts led by Hong Kong-based Linda Sun-Mattison.
“Earnings quality is a concern, asset risks increasing and weak capital position not addressed,” the analysts wrote in an e-mailed report today. “We reiterate that despite a strong headline result, Ping An’s risk-to-reward profile is not as attractive as those of the other Chinese insurers.”
China’s life insurance companies may report an average 92 percent jump in net income for 2013 due to low year-earlier bases and property insurers may record 14 percent expansion, according to Bocom International Holdings Co.
Solvency Ratio
Ping An’s solvency ratio, which gauges an insurer’s ability to settle claims, dropped 12 percentage points to 174 percent despite a 26 billion yuan [$4.228 billion] bond sale, the Sanford C. Bernstein analysts noted. The declines in the ratios at both the life and property insurance units were mainly due to a large dividend payout to the group, “confirming our view that the insurance businesses are increasingly being leveraged up” so that capital can be used in other operations, they wrote.
Bocom International’s Beijing-based analyst Li Wenbing cut profit estimates for this year and next by 2 percent and 5.9 percent respectively. The insurer’s property and casualty insurance business “deteriorated,” he wrote in a report today, citing a 1.1 percentage point increase in the combined ratio, which measures claims and expanses as a percentage of premiums earned, in the second half of 2013 from a year earlier.
Investment Returns
A 13 percent increase in net premiums earned and a 14 percent profit gain at the banking arm helped Ping An Chairman Peter Ma boost earnings from 2012 when impairment losses more than doubled on prolonged stock-market declines.
Net investment income jumped 66 percent to 54.9 billion yuan [$8.927 billion], the Shenzhen-based insurer said. Impairment losses from investments, which more than doubled to 10 billion yuan [$1.626 billion] in 2012 following an almost 20 percent, two-year rout in the Shanghai Composite Index, narrowed to 8.97 billion yuan [$1.4585 billion], according to the statement. Net premiums earned were 240.2 billion yuan [$39.057 billion], Ping An said.
Ping An Bank Co.’s profit rose to 15.2 billion yuan [$2.47 billion] in 2013 as loan margins widened, the Shenzhen-listed banking unit said on March 6. That was 170 percent higher than the forecast by Sanford C. Bernstein Co. largely due to a delay in recognition of non-performing loans, which could have more than halved the lender’s net income and cut the group’s profit by about 12 percent, according to the analysts.
China Life Insurance Co., the nation’s biggest insurer, said Jan. 27 that estimated profit for last year may jump by about 120 percent from a low base in 2012, aided by higher investment income. The forecast fell short of the 164 percent gain analysts predicted.
China Pacific Insurance (Group) Co. said in January that profit jumped about 80 percent in 2013, while New China Life Insurance Co. forecast an increase of about 50 percent because of higher investment gains and lower impairments. All three companies are scheduled to report results later this month.
Ping An’s new business value, a measure of profitability of new life policies sold, grew 14.1 percent, according to yesterday’s statement.