In Part 1 of this article, I’ve shared on the incredible business moat of both Ping An’s core insurance and tech businesses such as its fin-tech, health-tech companies supported by its in-house core technologies which include AI, block-chain and cloud ecosystems. One of its tech unicorns, Ping An Good Doctor (Included in the Hang Seng Tech Index) seen its revenue from online healthcare services grew 106.8% year on year in the first half of 2020 and its online platform was accessed 1.11 billion times during the peak of the COVID-19 epidemic [1]. If you haven’t read the Part 1 of this article, do check it out prior to reading Part 2.
We will be touching on the Management and Financial aspects of the business in Part 2.
Management
Ma Mingzhe is the founder of Ping An Insurance and are one of the few who brought in foreign investors such as HSBC, Morgan Stanley and Goldman Sachs. [2]. He is also recognized honourably as the "60 people in the 60-year history of the Republic of China" [2]. Ping An also rose above domination by most state-owned insurance companies and its brand is again the top amongst global insurance brands [3].
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It was reported that Ma Mingzhe has stepped down as CEO and will hand over the position to three co-CEOs. However, he will still continue his role as the company’s chairman. Ping An was founded in 1988 [3] and the change in CEO came at a time when the operating and decision-making mechanism is complete, company talent development plans are thorough. Moreover, the decision-making mechanism within the company is shown to be effective after years of implementation [4].
Ping An has a 5 year average Return on Equity (ROE) of 18.56% which signifies a strong management as it shows the company's assets were effectively utilized to create profits.
We also observed that the company has created such a strong innovative culture where its new tech companies (Ping An Good Doctor, OneConnect, etc.) have developed into unicorns and the huge growth in patent applications over the last 5 years as mentioned in my earlier piece “The Next Big Tech? Also My Top Holding (Part 1)”.
Ping An plans to build its technological capabilities by means of AI, blockchain, cloud, big data etc. It has poured over RMB 100 billion into technology in the last 10 years and in the next 5 years, the insurer has pledged to carry on investing RMB 100 billion [5].
Also a coincidence that Alibaba, Tencent and Ping An’s founder have the surname, “Ma” 🤣.
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Financials
In 2018, I wrote my first article on Ping An where I compared 5 years of its financial data with China Life’s. Probably, it’s worthwhile to do the same comparison again now. Do note that I am using 2019’s data to reflect full year results.
Reason for comparing it against China Life Insurance is because China Life Insurance is the largest state-owned insurance company whereas Ping An is the largest private insurance company. I’ve also touched on Ping An’s market share in life and non-life insurance in Part 1. From the comparison tabulated, we can observe that Ping An wins in many ways in terms of growth potential for its profit / revenue / NAV / DPS / EPS. Probably, that also shows why Ping An’s Price to Book is higher than China Life, being more ‘valuable’. However, one red flag is Ping An’s debt seems to be on the high side. However, its interest coverage ratio is above 3 and has an above average return on capital. Ping An also has a positive operating cashflow for the past 5 years. Despite so, I would still feel safer if Ping An had kept its debt lower.
When there’s a will, there’s a way through.
Updates from Telegram/Facebook page:
Here are some of the selected posts (screenshots) from my Telegram & Facebook page. If I did any trades, sometimes I will also share it there. Recently, I've shared my SMIC purchase at HK$18.04 on 9th Sep 20. At this point of writing (18th Sep 20), it's trading at HK$20.45. A good 13% profit in slightly more than a week. Do join us to check out our previous and future sharing!!
Not encouraging any trades & my positions might change without notice. Just sharing the stock idea for reference, learning purposes only. Do not follow trade, practise due diligence and do check out our full disclaimer.
Verdict
Just to share on the result of a quick poll over in our Telegram Channel:
Can’t really give advice on what is a good price to buy due to different investment objectives and different asset allocation. What I can do is to share what I’ve done and… I’ve added more Ping An shares during the COVID-19 low. A relatively small position reason being that prior to COVID-19, I have already owned many Ping An shares which I’ve been accumulating over the years. It has already exceeded my usual set threshold of 10% for a single holding. You can view my previous buy receipts of Ping An at HK$30+, HK$40+ in my portfolio.
Needless to say, I’m a huge fan of Ping An. My position in Ping An has crossed the HK$1 million-mark last year and that does not include my Ping An A shares holdings denoted in RMB.
Investing in developing tech companies does entail more risk, afterall, not every tech unicorn will grow to become as big as Amazon or Facebook. An advantage for Ping An’s tech related businesses is that Ping An has a core cash cow insurance business that can somewhat continuously fund and compliment them (vice-versa). Ping An Good Doctor promotes its services by integrating them into Ping An Insurance’s critical illness products [6]. In the circumstance when there are hiccups, they are still able to fall back to their core insurance business.
Alibaba, Tencent and Ping An are all into Fintech but do note that the key difference is Ping An comes from a finance background. Ping An’s tech is not weak either.
Ping An Technology (Shenzhen) Co., Ltd. (Ping An Technology) holds the world record with a score of 90.6 in the renowned General Language Understanding Evaluation (GLUE) benchmark for Natural Language Processing (NLP) as of 30 March 2020. Strong competitors such as Baidu came in second place and Alibaba came in third place [7].
The current top-ranked auto service app in China, "Ping An Auto Owner", is launched by Ping An Property & Casualty Insurance Company of China, Ltd. (Ping An Property & Casualty) in 2014. About 50% of the app users are Ping An Property & Casualty’s auto insurance customers [8].
It’s widely discussed that China is a contender to become the next economic powerhouse. Noting some recent movements from investment giants, Temasek’s investment in China had surpassed Singapore for the first time. China accounts for the largest portion (29%) of Temasek’s Underlying Assets [9]. Temasek has also swapped half of its US Alibaba shares to Hong Kong-listed stock [9]. In my earlier article few months ago, I also mentioned that I swapped all my U.S. listed Alibaba shares to the Hong Kong listed shares. A PwC study noted the Chinese economy will overtake the US by 2030 [10]. A separate study done by IMF and HSBC reiterated the same view [11]. Furthermore, if based on Gross Domestic Product (GDP) at Purchasing Power Parity (PPP), China has surpassed US as of 2016 [12]. Some economists argue that the PPP is a better measure of an economy than the nominal GDP [12]. I believe that Ping An is able to ride this megatrend and I wish to be part of it.
Cheers & Great Weekend!!
Disclaimer: Just sharing from experience as I have put my own money into the stock market over the period of 17 years. I am not a Chartered Financial Analyst (CFA) Charterholder and do not have any finance-related qualifications. Please also check out our full disclaimer.
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Reference Links:
1.https://www.insurancejournal.com/news/international/2020/08/28/580748.htm
2.https://en.wikipedia.org/wiki/Ma_Mingzhe
3.Ping An 2019 Annual Report
4.https://www.marketscreener.com/quote/stock/PING-AN-INSURANCE-GROUP-1412620/news/Ping-An-Insurance-of-China-Yao-Bo-appointed-as-Co-CEO-of-Ping-An-Ma-Mingzhe-resigns-as-CEO-and-co-30859488/
5.http://www.aastocks.com/en/stocks/news/aafn-con/NOW.1041508/latest-news
6.https://www.scmp.com/business/article/3050074/ping-good-doctor-chinas-largest-health-care-platform-reports-jump-users
7.https://www.prnewswire.com/news-releases/ping-an-sets-world-record-in-general-language-understanding-evaluation-glue-benchmark-301032236.html
8.https://www.prnewswire.com/news-releases/ping-ans-auto-service-app-ranked-top-in-china-with-over-100-million-users-covid-19-spurs-demand-for-online-auto-service-301038131.html
9.https://www.bloomberg.com/news/articles/2020-09-08/temasek-s-china-exposure-surpasses-singapore-for-first-time
10.https://www.cnbc.com/2017/11/09/goldman-sachs-ceo-lloyd-blankfein-chinese-economy-will-surpass-the-us.html
11.http://www.chinadaily.com.cn/a/201809/26/WS5baaee2fa310c4cc775e8212.html
12.https://www.bloomberg.com/view/articles/2017-10-18/who-has-the-world-s-no-1-economy-not-the-u-s