Banking & Finance

Three-horse race

Are Ping An’s shares poised for a rerating?


Peter Ma: Ping An’s boss

As corporate threesomes go, they don’t get much stronger than the BAT troika of Baidu, Alibaba and Tencent. The three technology giants and their high-profile founders exert a very strong hold over the Chinese public’s imagination.

It is a dynamic which appears to annoy their fintech rival, Ping An, which would probably much prefer a Ma-based troika comprising Peter Ma, its CEO and effective founder, along with Alibaba’s Jack Ma and Tencent’s Pony Ma.

In mid-July, the insurer held a “fintech day” with the aim of persuading the financial community that it is as much a tech firm as a financial one. Since then, one analyst after another has acknowledged that their valuations have taken no account of the company’s booming internet finance businesses.

If they did value them, then Ping An might justify a rating far closer to BAT levels since four of its 10 major internet businesses are already profitable. The quartet (Lufax, Zhong An P&C, Good Doctor and Ping An E-Wallet) are worth at least $37 billion based on recent fundraising rounds, with Ping An’s stakes worth close to $13 billion, or about 8.5% of its own market capitalisation.

However, none have yet been separately listed and traditionally insurance companies are valued as capital-intensive businesses using metrics like embedded value rather than as capital-light ones using standard price-to-earnings (PE) multiples. As a result, Ping An is still valued far below the BAT despite hitting an all-time high on the Hong Kong Stock Exchange in August.

At its current share price, the group is trading at around 16 times consensus 2017 earnings and 14 times 2018 earnings. By comparison, Alibaba and Tencent command 2017 PE multiples three times higher at around 44 and 42 times respectively, while Baidu is at 32 times.

In 2018 terms, Alibaba and Tencent are still trading at 28 and 36 times forecast earnings, more than double Ping An’s level. Baidu is again slightly lower at 23 times.

Chinese website FINET quotes Ping An CFO, Yao Bo, who complains his company shouldn’t be valued as a traditional finance firm and reiterates its technology-driven future. Ping An has a huge annual tech budget (Rmb7 billion), which few can rival. And as company officials continually emphasise, the tech layer serves to support the group’s existing businesses, or widening their scope to provide customers with a better service.

Some of the tech investments are already paying off. Good Doctor is a prime example. The mobile app complements Ping An’s health insurance business by offering its 131 million users online consultations, then orders the drugs they need.

Taking a swipe at rivals such as Anbang, Ping An’s president Alex Ren told Institutional Investor, “We don’t buy or invest in firms not related to our main businesses like hotels or sports teams and focus on things which add value.”

Ping An’s recent share price gains, however, show that investors are starting to take note and the forthcoming IPOs of some of its tech businesses should help unlock more value. First off the block is Zhong An Insurance, China’s first pure online insurer in which Ant Financial and Tencent also hold stakes. Most recently, it had a $15 billion valuation.

The big debut is undoubtedly Lufax, China’s leading peer-to-peer lender and distributor of mutual funds. It was most recently valued at $18.5 billion (Ping An holds a 44% stake plus 11% in convertible bonds). It was scheduled to go public this year, but the IPO had reportedly been pushed back to 2018 because of uncertainty over government regulations regarding online finance.

Ping An recently told investors its huge sales force (1.5 million agents) is another key advantage it holds over the BAT, since face-to-face interactions instil customer trust. This is not without its own irony given one of Ping An’s main calling cards is its world-beating facial recognition technology (99.8% accuracy rate). The company already has an active database of 100 million customers and a further 300 million faces recorded. The technology will slash the processing time for new contracts and means dealing with claims can drop from hours to minutes. It also gives Ping An a new springboard for its international ambitions: monetising its investments by exporting the technology to other financial firms.

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