Ping An’s Share Buyback Can’t Recapture Its 2017 Fintech Glory Days: Opinion

By Nisha Gopalan, Bloomberg View | March 14, 2019

Sometimes, boring can be a good thing.

Ping An Insurance (Group) Co.’s buyback looks like an attempt to recapture its 2017 glory days, when a series of exciting fintech initiatives turned the Chinese insurer into a must-have stock. As those projects struggle to live up to expectations, the company’s shares have lagged more staid peers such as China Life Insurance Co. and People’s Insurance Co. (Group) of China Ltd.

The insurer will repurchase between 5 billion yuan and 10 billion yuan ($745 million and $1.49 billion) of its Shanghai-listed stock, Ping An said late Tuesday after reporting full-year profit that beat estimates. The shares rose as much as 3.7 percent in morning trading Wednesday. Spending such a large amount on a buyback when the stock has already surged more than 20 percent since early January raises more questions than answers, though.

The stock market has been slower in the past year to reward the company’s fintech forays, which have yet to live up to the grandiose hopes that investors have pinned on them. Ping An shares more than doubled in 2017 on the strength of those ambitions. “Fintech and healthtech” contributed just 6.4 percent to the insurer’s net income last year, little changed from 5.5 percent in 2017. Ping An’s 2018 earnings report leaves no doubt where the insurer’s focus lies, though: The word “technology” appears 124 times.

Ping An Healthcare and Technology Co., the online platform better known as Good Doctor, had a disappointing stock-market debut last year, and is languishing 10 percent below its May offer price. Meanwhile, the insurer’s partly owned financial services firm, Lufax, has been caught up in Beijing’s clampdown on peer-to-peer lenders.

Granted, that hasn’t soured private investors, which remain fans of the online lender’s ecosystem. Lufax raised funds from backers including the Qatar Investment Authority in recent months that value the company at $39.4 billion.

There’s a bigger issue for Ping An. The core insurance business that subsidizes its fintech push is slowing. Meanwhile, all of the tech projects apart from Lufax are unprofitable.

The value of new business from Ping An’s long-term protection products grew by only 4 percent in 2018. Meanwhile, agents are being encouraged to sell more fintech products such as peer-to-peer loans rather than standard insurance policies, according to Leon Qi, an analyst at Daiwa Capital Markets. The overall value of new business rose 7 percent last year, down from an annual rate of about 45 percent between 2014 and 2017, Qi said.

The company’s hiring policies illustrate the tilt toward tech and away from insurance. By the end of last year, Ping An had 1.42 million agents, a drop of 1 percent. Yet the number of “low-touch” telemarketing agents rose 22 percent. Customers usually prefer more human interaction before committing to long-term insurance policies, which are more profitable.

Ping An’s relative under-investment in equities is also a disadvantage as China’s market booms. At the end of 2018, equity investments made up just 8.3 percent of Ping An’s portfolio. That’s below China Life’s 15.4 percent and New China Life Insurance Co.’s 17.3 percent as of the end of June last year (the latest data available). Wealth management products account for about 10 percent of Ping An’s portfolio.

By repurchasing equity only in Shanghai, Ping An should at least raise the relative value of its A shares which, unusually, have traded at a discount to the Hong Kong-listed H shares. Some investors may still wonder whether the money could have been put to better use on the more boring side of things.

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