Recently, Hong Kong's insurance sector has ushered in a strong rebound when the Hong Kong stock market is improving.
On May 10, the entire Hong Kong stock insurance sector rose 4.4%, of which Ping An H shares of China rose nearly 6%, and A-shares also rose nearly 2% intraday.
It has been noted that since April 15, both Hong Kong stocks and A-shares have shown an obvious inflection point in the entire insurance sector, and in 17 trading days, there has been a full screen of positive lines, and few have closed down.
Statistically, Ping An's A-shares rose by 14% during this period, and H-shares rose by 35%, which is quite strong.
(Ping An H shares of China, source: Futu Quotes)
(Ping An A shares of China, source: Futu Quotes)
Whether it is the superposition effect of multiple favorable factors such as policy or insurance company fundamentals, it provides solid support for the strengthening of the insurance sector, and Ping An of China, which has performed well, can be said to continue to harvest its own alpha and walk out of a rather bright market under the beta market of the industry.
Let's take a closer look.
1· Policy side: welcome multiple positive catalysts
Favorable policy is an important catalyst for the recent strength of insurance stocks.
Specifically, the following policy changes should not be overlooked.
First of all, on May 9, the State Administration of Financial Supervision and Administration issued the Notice on Matters Concerning the Agency Insurance Business of Commercial Banks.
Among them, the most important point of the "Notice" is that the limit on the number of cooperation between bank branches and insurance companies has been lifted. It is clarified that commercial banks act as agents for Internet insurance business, telephone sales insurance business and other insurance business, and there is no limit to the number of cooperative insurance companies at all levels of branches and outlets.
Prior to this, each branch of a commercial bank could only cooperate with no more than three insurance companies in the same fiscal year. The online and offline integration business can be exempted from the number of three insurance companies.
In addition, the Notice also clarifies the level of cooperation between the two parties and the commission standard for bank agency business.
In this regard, China Merchants Non-Bank believes that favorable policies are expected to create a "win-win" situation for all parties in the industry. For insurance companies, the fully competitive market requires them to pay more attention to product and service innovation, and the leading companies are expected to occupy a leading position in high-end customer operations by virtue of their resource advantages in service, brand and customer management, and the value contribution of bancassurance channels is expected to continue to increase. Small and medium-sized companies are expected to reach more customers and ease their operating pressure by signing up more bank branches. It is not necessary to open third- or fourth-level branches to cooperate with bank outlets, which is also conducive to the insurance industry to reduce costs and increase efficiency.
It can be seen that the "Notice" also reiterates the requirement of "integration of newspapers and banks", and the deepening of this policy and the boost to the performance of leading insurance companies are also the key catalysts for the recent strengthening of the capital market of listed insurance companies. Recently, the research report released by Guotai Junan also mentioned that the regulator once again emphasized the requirement of "integration of reporting and banking" in channel rates, and the products of leading companies in the same rate environment benefit from additional service systems and other competitive advantages, and it is expected that the willingness of banks and leading insurance companies to cooperate will be further enhanced.
In fact, since August last year, the regulatory authorities have successively issued relevant regulatory policies to promote the full implementation of the "integration of newspapers and banks". Under the continuous guidance and regulation of the "integration of newspapers and banks", the handling fee rate of the bancassurance channel has been significantly reduced, and the value of new business in the channel has been continuously improved.
In the first quarter of 2024, the value of new business of listed life insurance companies achieved double-digit growth, exceeding market expectations.
In addition, on May 9, the State Administration of Financial Supervision and Administration also issued guidance on the banking and insurance industry to do a good job in the financial "five major articles". Among them, it is clear that financial support for the health industry, pension industry, and silver economy will be increased. This points the way for the future development of the insurance industry. With the intensification of the aging trend of the population, the demand for pension insurance and health insurance will continue to grow, providing new growth points for insurance companies. Insurance companies represented by Ping An that are deeply engaged in the field of health and pension are also expected to continue to benefit.
It is worth mentioning that at Ping An's 2023 results conference, Guo Xiaotao, co-CEO of Ping An, said that he would continue to deepen the strategy of "comprehensive finance + medical pension", establish a managed medical pension service system with Chinese characteristics, and make an upgraded version of the "Wells Fargo + United Health" model in the future to create a new growth curve.
In terms of the Hong Kong stock market, it has recently been reported that the mainland is considering reducing the dividend and dividend tax for mainland individual investors investing in Hong Kong-listed companies through the Hong Kong Stock Connect. This news also formed a direct stimulus to the "high dividend" concept stocks in the Hong Kong stock market, and insurance stocks as an important part of the high dividend sector also ushered in a strong catalyst. In this regard, Zhongtai International pointed out that if the dividend tax on H-shares and red chips can be reduced, it can increase the actual dividend return of domestic investment in Hong Kong stocks, and the lower relative valuation of Hong Kong stocks will inevitably attract more long-term domestic capital into the Hong Kong stock market. CICC believes that if the dividend tax reduction and exemption of Hong Kong Stock Connect is implemented, it is expected to further boost the investment enthusiasm of mainland investors in Hong Kong stocks, especially in high-dividend related sectors, which will boost sentiment in the short term and help improve the liquidity of the Hong Kong stock market in the long run.
In addition, the stability of the real estate market has also brought positive expectations for the insurance industry, which has direct or indirect investment in this area. In the context of the recent comprehensive relaxation of purchase restrictions, the real estate sector continues to strengthen, and the market risk is cleared, insurance capital, as a force to be reckoned with in the real estate market, has also continued to benefit from the changes in the direction of the industry, bringing about a shift in market expectations.
2· Company side: The fundamentals are good, with both short-term certainty and long-term growth
From the perspective of the industry as a whole, the general optimization and improvement of the value indicators of insurance companies is also the key to supporting the further recovery of the valuation of insurance stocks. Focusing on the company level, Ping An's ability to gain the enthusiasm of the capital market is obviously inseparable from the strong support of its own fundamentals.
In the author's view, the certainty of short-term performance and the growth expectation brought by long-term ecological potential are the core focus of the current market to support the company's value boost.
First of all, whether it is the previous annual report or the first quarterly report, Ping An's core business has shown a good momentum of recovery.
Among them, Ping An's three core businesses, life and health insurance, property insurance and banking, the total operating profit attributable to shareholders of the parent company achieved a turnaround in the first quarter, which is also in line with the consensus expectation of most institutions for Ping An's profit recovery.
From the perspective of business structure, life insurance and health insurance remain the top priority of Ping An. In 2023, the value of new business in life and health insurance will be RMB31.080 billion, a year-on-year increase of 36.2% on a comparable basis. In Q1 2024, the new business value of life and health insurance business reached 12.890 billion yuan, a year-on-year increase of 20.7% on a comparable basis.
The sustained high growth of core indicators is a concrete manifestation of Ping An's in-depth reform in terms of channels and products in recent years.
The effectiveness of the reform of the agent channel is particularly prominent. In the first quarter of this year, the proportion of "excellent +" in the new manpower increased by 11.0 percentage points year-on-year, which greatly increased the proportion of outstanding talents, which in turn led to the continuous growth of production capacity, and in the first quarter of 2024, the per capita new business value of the agent channel increased by 56.4% year-on-year, and the new business value rate reached 22.8%, a year-on-year increase of 6.5 percentage points on a comparable basis.
In terms of products, new increments have also emerged, and the three major product service lines of "insurance + health management", "insurance + high-end pension" and "insurance + home care" have formed Ping An's differentiated advantages. As of the end of the first quarter of 2024, Ping An Life's health management has served more than 10 million customers, Ping An's home care services have covered 54 cities across the country, and nearly 100,000 people have been qualified for home care services.
It can be said that this series of reform measures has directly promoted the growth of new business value and provided strong support for the company's performance recovery in the short term.
Secondly, from a long-term perspective, in the final analysis, the source of Ping An's ability to achieve all of the above is the implementation of the "comprehensive finance + medical pension" strategy, which not only builds a competitive advantage for the company in multiple dimensions, but also lays a solid foundation for its long-term development.
On the one hand, relying on a comprehensive financial business layout, Ping An provides customers with one-stop comprehensive financial solutions that are "worry-free, time-saving, and money-saving", which has become the key to the long-term improvement of customer acquisition and customer retention capabilities. Since the end of 2019, the number of Ping An customers has increased by 17.9%, and the average number of contracts per customer has increased by 10.1%.
On the other hand, Ping An has established a huge medical and elderly care ecosystem, connecting multiple nodes such as payment, service, and medical care, and covering the whole process from prevention, chronic disease management, disease treatment to post-recovery management, which can not only achieve independent business value, but also empower comprehensive financial business.
As of the end of March 2024, more than 63% of Ping An's nearly 234 million individual customers have also used the services provided by the medical and elderly care ecosystem, with an average of about 3.37 contracts and an average AUM of 57,600 yuan, which are 1.6 times and 3.6 times that of individual customers who do not use the services of the medical and elderly care ecosystem, respectively.
Overall, the continued improvement in performance data has strengthened Ping An's short-term certainty, while the two-wheel drive strategy has further enhanced the company's long-term growth. Together, these factors constitute Ping An's attractiveness in the capital market and indicate that the company has good prospects for development in the future.
3· Market side: the bottom of the position + the bottom of the valuation, new opportunities under the expectation of the bull market
The renewed enthusiasm of the capital market is, of course, inseparable from the improvement of the capital environment.
According to Oriental Wealth data, southbound funds have bought a net of 224.855 billion Hong Kong dollars since the beginning of this year. As of May 10, southbound funds have been net buyers for 13 consecutive weeks, of which five weeks have exceeded HK$20 billion in a single week. It is worth mentioning that during the May Day holiday, in the absence of southbound funds, the upward trend of the Hong Kong stock market continued, indicating that the repair force of the capital side is not single. The CICC research report directly pointed out that the rebound of Hong Kong stocks was more supported by foreign capital.
Behind this is not only the short-term catalyst brought about by the adjustment of the internal allocation of international capital in the Asia-Pacific market, but more importantly, the expectation of domestic fundamentals is improving, which has been recognized by the international market. Goldman Sachs said in its latest report that under the optimistic scenario scenario, the valuation of the A-share market has the potential to increase by 20% to 40%. UBS expressed a similar sentiment in its strategy report, upgrading China to "overweight".
Foreign investors tend to give priority to the allocation of core assets represented by insurance. In fact, the continued strength of the insurance sector since late April also confirms this judgment.
In addition, in the past few years, due to the joint suppression of both assets and liabilities, mainland public funds have continued to reduce their allocation to insurance stocks. In the first quarter of this year, the public offering of insurance stocks accounted for only 0.15%, the lowest level in recent years, far lower than the standard allocation of 1.55%. However, many of the core constraints have shown signs of marginal improvement, which is expected to form a "bottom" in the insurance sector.
China Merchants Securities Research Report pointed out that with the introduction of ultra-long special treasury bonds in the future, the situation of "asset shortage" is expected to be alleviated, driving long-term interest rates to stabilize and rebound, and then alleviating the current risk of interest rate loss of insurance companies. In addition, China Merchants Securities also pointed out that the policy combination continued to exert force, driving A-shares back to the upward trend, and insurance stocks with strong beta attributes have strong upward elasticity.
From this point of view, whether it is Hong Kong stocks or A-shares, the insurance sector is expected to continue to harvest new opportunities under the background of valuation and allocation, benefiting from the strong expectations of the entire market environment and the increase in funds. Especially considering the repair trend of fundamentals and the characteristics of high dividends, insurance stocks have become a high-quality sector with a very cost-effective advantage in the current market. Against this backdrop, the attractiveness of high-quality leading insurers will also be further strengthened in the market.
4· epilogue
Overall, the recent multiple favorable policies, the repair of fundamentals and the improvement of capital have provided a solid foundation for the strengthening of insurance stocks. Looking ahead, with the gradual release of policy dividends and the growth of market demand, the basic trend of insurance companies continues to be realized, and the market interpretation of the entire sector in the capital market is expected to continue.
In addition, special attention is paid to the Hong Kong stock market, the emergence of a technical bull market, the market's pursuit of dividend stocks is also becoming the main line, and the high dividend of the insurance sector is expected to strengthen the positive feedback of the market. Recently, the Founder Securities Research Report specifically named Ping An of China, pointing out that the company attaches great importance to dividends and dividend levels, and is expected to continue to increase dividends in 24 years. As of the close of trading on May 7, the company's 2023 dividend yields for A-shares/H-shares were 5.7%/6.7%2, respectively2, and Founder Securities maintained the company's "highly recommended" rating.