Ping An’s Q3 Shows Positive Life Reform Progress; Lower FVE on Prolonged Headcount Stabilization

Ping An Insurance’s third-quarter results were largely in line, with the first-nine-month net profit declining 20.8% year on year versus a 15.5% decline in the first half. Year-on-year contraction in the first-nine-month value of new business, or VONB, widened to 18% on a 4.5% decline in first-year premium and a 5-percentage-point decline in VONB margin. Such declining trend was expected, but the 20% quarter-on-quarter decline in agent headcount exceeded our expectation. We had expected agent headcount to gradually stabilize in the first half of 2022. But management indicated the shrinking agent force is likely to continue in coming quarters. Management guided a double-digit decline for 2021 VONB, but it did not provide guidance on 2022 VONB growth in light of 1) lingering uncertainties regarding the timing of agent headcount stabilization; and 2) the time needed for new agents to ramp up productivity after a six to 12 month training program. To factor in lower life insurance premium growth assumption for 2022, we modestly reduce our fair value estimates to CNY 80 from CNY 85 per A-share, and to HKD 95 from HKD 101 per H-share.