Ping An saw its VNB momentum turn positive in 4Q22 with 11.7% YoY growth, as its channel reform scheme expanded to nationwide. Excluding assumption changes, FY22 VNB declined by 17.5% YoY, narrowing from -18.9% YoY in 9M22 and -20.3% YoY in 1H22. During the FY22 results briefing, the management guided for positive VNB growth in 1Q23 and FY23, and indicated that the new business momentum turned around in Feb 2023 and the positive growth sustained into March, driven by improving productivity across agency and multiple channels, i.e. community grid, private wealth advisers, etc. On P&C front, the overall underwriting margin was dragged to -0.3% in FY22 by a 40pts increase in guarantee insurance combined ratio. Excluding the guarantee business, P&C combined ratio would be 97.2% in FY22. Group OPAT was flattish in FY22, while DPS edged up 1.7% YoY. Looking into 2023, we expect the ongoing channel reform will further drive sequential improvement in VNB momentum and underpin robust OPAT growth together with a progressive dividend payout. Reiterate BUY.
　　Life turnaround driven by channel reform and group synergies. With　the continual channel reform, Ping An saw 25%/32% YoY growth in 2022 in the productivity/income of high-potential agents, the bulk of its agency force, reversing the downward trend in 2021. Including the cross-selling commissions, agents’ average monthly income reached RMB 8k-9k. On product front, the VNB from customers entitled to health management or elderlycare services rose to 55% in FY22, up from 31% in FY21, reflecting strong synergies across Ping An’s ecosystem.
　　Expect manageable impact from the adoption of IFRS 17. The　management flagged that the adoption of IFRS 17 will have minimal impact on its book value and OPAT. The net profit would appear to be more smooth under IFRS 17, because 1） the reserve charges due to the changes in discount rate will go through OCI, and 2） the reserve variance of other assumption changes will go direct into CSM and to be amortized over the policy duration.
　　Valuation: Ping An’s A and H shares are now trading at 0.5x P/EV FY23E and 0.9x P/BV FY23E, with an operating ROE of 15.2%. Looking forward, we believe the ongoing channel reform will steadily drive the turnaround of the life insurer’s VNB growth throughout 2023, in which will underpin long- term operating profitability and a solid dividend payout. Reiterate BUY.