PING AN OF CHINA(HK:02318) Xin Lang Cai Jing·2025-12-25 03:56Core Viewpoint - China Ping An (02318.HK) has shown strong performance, consistently rising even as the Hang Seng Index (800000.HK) declines, indicating potential for value reassessment based on new narratives [1][10]. Valuation Methodology - The report suggests that the P/EV (Price to Embedded Value) ratio is a more suitable valuation method for insurance companies than traditional P/E (Price to Earnings) or P/B (Price to Book) ratios, as it accounts for the future cash flows from long-term policies [2][11]. - P/EV reflects the company's long-term profitability better, with a P/EV of 1 indicating fair value, below 1 indicating undervaluation, and above 1 indicating overvaluation [2][11]. Business Model and Profitability - The insurance industry is divided into life insurance (including health and annuity insurance) and property insurance, with life insurance further segmented into various categories [3][12]. - Insurance companies profit by collecting premiums before paying claims, leveraging the time and expectation differences to generate income, summarized as "three differences": interest spread, mortality spread, and expense spread [3][12]. Growth Potential - China Ping An's current P/EV is approximately 0.7, higher than other domestic insurers but lower than AIA (over 1.5), indicating room for growth and potential valuation reassessment [4][13]. - The company is expected to achieve a compound annual growth rate (CAGR) of over 15%, with a projected growth of 23% in 2026, reflecting its growth potential [4][13]. Investment Returns and Dividend Policy - Over the past decade, China Ping An has consistently outperformed peers in net investment returns and has a stable dividend policy, with dividends linked to operating profits, providing predictable returns [4][14]. - The company has increased dividends for 14 consecutive years, showcasing its commitment to shareholder returns [4][14]. Integrated Financial Services - China Ping An operates as a comprehensive financial platform, integrating banking, asset management, and technology, which enhances operational efficiency and customer retention [6][15]. - The company is expanding its healthcare and elderly care services, capitalizing on the aging population and increasing demand for these services, supported by favorable policy changes [6][15]. Competitive Advantages - The integration of insurance, finance, and healthcare creates a large and sticky customer base, with a retention rate of 97.5% for customers holding four or more contracts [6][15]. - The unique "insurance + healthcare" model provides differentiation and pricing power, with advanced AI technology enhancing operational efficiency and reducing costs [7][16]. Future Outlook - The long-term growth narrative for China Ping An is centered around the integration of finance, healthcare, and elderly care, which is expected to expand its competitive moat and lead to a comprehensive valuation reassessment [9][19]. - The company is well-positioned to navigate market fluctuations due to its investment strategies and regulatory support, which may improve its interest spread [9][18].