Ping An

Its banking business was successfully transformed strategically, which will become one of the most important sources of income to the Group. Most importantly, the enhacement of its distribution channels will facilitate the group¡¦s insurance and banking services to perform cross selling. As at theend of 31 Dec 07,Shenzhen Ping An Bank¡¦s total assets was Rmb141.6 bn; net assets realized Rmb 6.3 bn; loans to customers amounted to Rmb 61.9bn; customer deposits recorded to Rmb 113 bn. The asset quality was improving as the capital adequacy ratio and non-performing loan ratio were 9.1% and 0.8% respectively.

Boost the security and investment business

Taking full advantage of the outburst in trading volume last year, both the traditional and creative products of Ping An Securities developed quickly,which realized net profit of up to Rmb 1.5 bn to the company. Also due to the bullish sentiment, Ping An Securities captured the net investment income of Rmb 51.6 bn. But we estimate the investment income will be immensely shrunk for the deep and continuous fall of the A shares market in 2008.

Acquire Fortis.

The company acquired 50% of the issued share of Fortis at an indicative price of £á2.15 bn. At the end of last year, the scale of Fortis asset management amounted to more than £á133 bn. Apart from earnings contributions, the acquisition will help Ping An to develop its asset management business in China sinceFortis possesses strong investment operations capabilityand management competence. Strategically, Ping An wisely takes the advantages on its strong financial position andRmb to acquire valuableasset when Europe and US financial institutions are suffering from sub-prime mortgage and credit crunch. This indicates thestrong determination of thegroup to expand overseas and we believe this is the core value of Ping An¡¦s long term development.

Investment opinion:

We revised the FY08 and FY09 NP to Rmb 24.37bn and Rmb 28.65bn respectively, up 30.25% and 17.68%. Translated into 15.7X and 13.32X 2008 and 2009 forecast PER, respectively. (If accounted for the proposed new A-share issuance, 2008 and 2009 PER will increase to 20.79X and 17.68X respectively). Ping An share price has been corrected for more than 50% and we believe the current price has already factored in the worries over its huge A-share issuance plan and the drop in FY08 investment returns. China insurance market remains on its high growth stage.Ping An deserves a higher rating for its innovative and aggressive strategies in penetrating the lucrative rural insurance market. We give it a BUY rating with a 6-month TP of HK$75, representing 20X on FY¢¯8F EPS.

Analysts tip insurers as good buys


ANALYSTS still rate listed insurers such as Ping An Insurance (Group) Co a "buy" on strong premium growth potential, despite recent drops in their market value.

Strong growth in premiums and the potential to claw back market share from smaller rivals are still factors to support big-name insurers' profits this year, said Xu Shoude, a China Jianyin Investment analyst, in a report.

Xu expects Ping An to rise to 93.7 yuan (US$13.37) by the end of this year, up 59 percent on its Thursday closing price. He also forecast China Life Insurance to reach 56.5 yuan, up 80 percent on recent prices. China Pacific Insurance is also expected to top 52.4 yuan from the current 27.15 yuan.

Life insurance premiums grew 66.95 percent to 76.28 billion yuan in January. In February, the figure increased to 67.84 billion yuan, up 72.39 percent from a year ago.

"The faster-than-expected growth signaled the prosperity of the industry amid rising purchasing power from residents," Xu said.

Bigger companies are likely to claim back lost ground from smaller rivals, he added.

Smaller insurers saw rising premiums last year by selling unit-linked products, where performance is tied to the stock market.

While such products may not be cheered by policy holders this year, insurers which mainly sell traditional life insurance may find a chance to fight back, the report said.

The industry's profit growth is unlikely to be as strong as last year amid the sluggish stock market. But it is unlikely to see returns of less than 5.5 percent.

The view is echoed by Sinolink Securities, which rated Ping An and Pacific Insurance "buy" and China Life "hold." Shares of Ping An have lost 44 percent this year, mainly dragged down by its giant funding plan amid a sluggish market.

Its rivals China Life and Pacific Insurance have lost similar momentum in share price

Fortis and Ping An will each nominate three non-executive directors and propose two independents. The senior management of the company will remain unchanged and will benefit from the Asian expertise of key Ping An executives. The current strategy of Fortis Investments is fully supported by both shareholders.   　　

 

The proposed transaction would create a unique asset management franchise with Fortis Ping An Investments benefiting from two sizeable home markets, the Benelux and China, while leveraging the obvious synergies and increased global scale brought by the integration of ABN AMRO Asset Management. The partnership, with its world class combined industry expertise and product diversification, would benefit from focused knowledge sharing, including the mutual exchange of employees and the provision of consulting services. Both parties firmly believe that the partnership will result in both a higher long term growth rate and a greater quality and diversity of earnings.

 

Fortis Ping An Investments will continue to be consolidated by Fortis. Fortis Investments has approximately EUR 23 million (net of provision) in CDO and CLO exposure as at December 31, 2007. Fortis has agreed to fully indemnify Ping An against any impairment in their value.  　　

 

Last November, Ping An acquired a 4.18% equity stake in Fortis,  which has subsequently been raised to 4.99%. Since then, both firms have explored several areas of potential business cooperation, with asset management taking priority. Asset management represents one of the most attractive sectors within the financial services industry, given growth of personal wealth, increased demand for retirement provision and burgeoning economic growth in China and other emerging markets.  　　Mr Peter Ma Mingzhe, Chairman and CEO of Ping An said,  “The proposed partnership is a unique and strong investment opportunity. It is perfectly aligned with Ping An's long term development strategy and at the same time fully consistent with our requirements for financial investments. This acquisition will generate high financial returns and stable cash flows, and also allows Ping An to benefit from the rich brand heritage, the world-class management and industry know-how in running a diversified product offering, which have been cultivated by Fortis and ABN AMRO over decades. Combined, these benefits will considerably accelerate Ping An’s commitment to the development of a highly competitive global financial services platform. Given the asset management sector’s enormous growth potential globally, and in China in particular, Fortis Ping An Investments should quickly become an important earnings driver for Ping An. By elevating our core capabilities in asset management in the domestic market, this transaction also supports the strengthening of our overall competitiveness and the implementation of our balanced “three business pillars” strategy, focusing on insurance, banking and investments/asset management. Finally, Ping An’s brand will now be introduced to leading financial markets globally through our new partnership utilising a well established network and thereby becoming a truly international diversified, financial institution. ”     Jean-Paul Votron, CEO of Fortis commented, “The creation of a global platform by combining Fortis Investments and the majority of the ABN AMRO Asset Management activities*** with Ping An is a unique opportunity to accelerate our growth plans for asset management, particularly within high growth markets such as China and elsewhere in Asia. We have consistently stated that to compete effectively in this sector at a global level requires both scale and expertise. Recent developments such as the acquisition of ABN AMRO and the creation of this important partnership with Ping An exemplify the extent of our global ambitions as a company. Combining Fortis Investments and ABN AMRO Asset Management, with assets under management of around EUR 245 billion*** was a critical first step, creating important synergies and a significantly enhanced global footprint. Our partnership with Ping An will provide us with unique access to the fast-growing Chinese and Asian markets, leveraging Ping An’s well established brand and extensive distribution capabilities for the benefit of our clients. The strategic growth ambition of both Fortis and Ping An are aligned and together we are creating a truly global asset manager with a greater profit growth potential in the future. ”     The transaction remains subject to final agreements and regulatory approvals.