Ping An (2318 HK)
　　Resilient DPS despite OPAT decline; EV assumptions change cut VNB more than expected
　　Ping An reported FY23 results, with the L&H EV economic assumptions cut by 50bps on long-term investment return from 5.0% to 4.5%, and 150bps on risk discount rate (RDR) from 11% to 9.5%. Both were for the sake of prudence in view of prolonged low interest rate and macro uncertainties. The adjustments were expected as the insurer has recorded at negative investment variances since 2018 which adversely affected the growth of EV. Yet the impacts to VNB and L&H EV outpaced market expectations. Four points to highlight: 1) Group OPAT -19.7% to RMB 118.0bn, dragged by a net loss of RMB20.7bn from asset management; 2) L&H VNB amounted to RMB 39.3bn, +36.2% YoY, if subject to end-2022 assumptions on a like-for-like basis, indicating resilient growth driven by stable VNB margin (-0.5pct from 24.1% to 23.7%); 3) economic assumptions change lowered L&H VNB by c.21% to RMB 31.1bn (+7.8% YoY) and L&H EV by c.11% to RMB 831.0bn (-5.0% YoY) vs RMB 930.2bn (+6.4% YoY) on a like- for-like basis; 4) the Group sustained DPS growth to RMB 2.43 per share, implying 37.3% payout on shareholders’ OPAT, despite OPAT decline. Concerning investment volatilities and high base since 2Q23, we lower FY24-26E EPS to RMB 6.94/RMB 7.87/RMB 8.62 and revalue the Group based on SOTP (Fig.4) to reflect underperformed Asset management (AM) and Technology. We adjust L&H EV with new sensitivity assumption. Maintain BUY, with new TP at HK$52.0.
　　OPAT missed, dragged by RMB 20.7bn loss in AM. The Group’s OPAT slid by 19.7% YoY due to a net loss of RMB20.7bn in asset management, vs RMB 2.3bn profits in 2022. The restated quarterly decrease enlarged under new assumptions at -6.8%/-10.1%/-24.7%/-54.5% in 1Q/2Q/3Q/4Q23, reflecting tightened regulatory oversight in 2H23. The Group’s NPAT slumped by 22.8% to RMB85.7bn (vs 9M23: -5.6%) with the 4Q print turned to a net loss of RMB 1.9bn (vs 2022: RMB18.2bn). Rising credit risks amid market volatilities triggering some assets revaluation caused the AM profitability pressure. CSM release (-7.2% YoY) was tugged by a decreasing CSM beg, balance (-6.7% YoY). Looking ahead, we project the L&H OPAT will be more reliant on investment results (+17.5% in 2023) with the growth of insurance service result approaching to 0%, as the contracted CSM balance is still likely to sustain.
　　Solid VNB growth driven by stable margin. L&H VNB +36.2% YoY to RMB39.3bn based on end-2022 assumptions and model, showing resilient VNB growth underpinned by stable margin (-0.5 pct from 24.1% to 23.7%). The restated quarterly prints even implied a sequentially improved trend as of 16.3%/19.5%/19.8%/23.1% in 1Q/2Q/3Q/4Q23, respectively. We regard this a mixture of more savings products sold under strong residential demands and improved margin in bancassurance under lowered expense rate in 2H23. Agency VNB +40.3% YoY to RMB 32.2bn and bancassurance VNB +77.7% YoY to RMB 3.6bn, comprising 91.2% of total L&H VNB by end-2023.
　　Effects of assumptions chg. outpaced expectation. L&H VNB amounted to RMB 31.1bn (+7.8% YoY), 20.8% lower than RMB39.3bn (+36.2% YoY) on a like-for-like basis. L&H EV fell by 11% to RMB831bn (-5.0% YoY) and Group EV declined by 6.7% to RMB1.39tn (-2.4% YoY), vs RMB1.49tn (+4.6% YoY) prior to the restatement (Fig.1). The change on economic assumptions (-5.4%) and negative investment variances (-2.0%) jointly affected the growth of EV.
　　Valuation: The stock is now trading at 0.45x FY24E P/EV. We expect the Group’s L&H OPAT to be more reliant on investment service results, and the beta trading momentum should benefit the market proxy when sentiment recovers. Maintain BUY with new TP at HK$52.0, implying 1.0x FY24E P/EV.