Bottom line: We expect market to react negatively to Ping A1Q25 results, givennet profit declined 26% yoy, tracking behind FY25E consensus. However, we believeunderlying earnings quality was better, give1) stable operating profit, and 2)positive book value growth, driveby large unrealized equity investment gains. Thenet profit decline mainly reflected 1) one-off consolidatioadjustment for Ping AnHealth, and 2) unrealized losses obond investments, which should be reverted in2Q if bond yield remains stable at current level.
　　Life NBV was ahead of expectations, reflecting larger-than-expected marginexpansiofrom product repricing and product mix changes. However, new policysales declined 19% yoy, driveby lower sales ithe agency channel. Managementdidn’t provide any FY25 sales guidance, but expects the strong NBV growth tocontinue. Iadditioto product mix changes, Ping ALife also sold longer premiumpaying term policies, which should be positive for margias well. Managementnoted that consensus is forming for another round of product repricing ithe 2ndhalf of 2025, which should lead to further declines icost of liability.
　　We fine-tune our estimates to reflect 1Q25 results and update estimates for Ping AnBank (covered by Shuo Yang). Our 12-month SOTP-based target prices areHK$49/Rmb56 (unchanged), implying 0.8X/1.0X FY26E P/B. We maintaiBuy for PingAH/A.
　　Key numbers and takeaways:
　　1Q25 headline operating profit was Rmb37.9%, -2% yoy, but increased by 2%olike-for-like basis to Rmb37.9bn, as life insurance OPAT increased 5% yoy oalike-for-like basis.
　　1Q25 net profit was Rmb27.0bn, dowby 26% yoy, as life net profit decreasedby 23% to Rmb19.4bn. The Rmb11bgap betweegroup net profit andoperating profit represents 1) Rmb3.4bone-off impact from Ping AHealth’sconsolidation, and 2) Rmb7.5bshort-term investment variance, mainly due tounrealized losses oc.Rmb100bperpetual bond and tier-2 capital bond. Ping Anhighlighted that most of the unrealized loss has beereversed i2Q to-date.
　　P&C net profit came iat Rmb3.2bi1Q25, -16% yoy despite a 3pt yoycombined ratio (COR) improvement to 96.6%. The decline is likely reflecting　　lower investment results i1Q25, including the unrealized losses othe bondportfolio.
　　Shareholders’ equity was Rmb939.7bi1Q25, +1% vs. 4Q24. Bond yieldmovement led to a c.Rmb22bnegative impact obook value i1Q, but this waspartly offset by unrealized gains oFVOCI equity investments.
　　1Q25 headline NBV was Rmb12.9bn, flat yoy / +35% oa like-for-like basis. Agencyand bancassurance channel delivered 11.5%/170.8% yoy NBV growth, respectively.
　　NBV growth was entirely driveby a 11pt NBV margiexpansioi1Q25, from 1) amore favorable product mix, 2) positive impact from industry-wide expense controlmeasures and 3) product repricing. Company expects sustained margiexpansioinfull year 2025 under current low-yield environment.
　　Agent headcount was 338k i1Q25, -7% qoq.
　　Core solvency ratio for life and P&C business were 164%/170%, +47pt/-2pt qoq.
　　The increase ilife insurance core solvency margiwas mainly driveby thereclassificatioof HTM (held-to-maturity) bonds to AFS (available for sale) bonds.
　　Othe Rmb20bcapital injectiointo Ping ALife, management noted that itwas mainly to provide a buffer osolvency ratio, iorder to allow company tofurther increase equity investment allocation.
　　Price Target Risks and Methodology - Ping AInsurance GroupValuatiomethodology: Our 12-month SOTP-based target prices are HK$49/Rmb56,implying 0.8X/1.0X FY26E P/B.
　　Downside risks: A further decline ioperating profit and/or CSM (contractual servicemargin) would put downward pressure odividend growth; further deterioratioisalesmix, leading to greater sensitivity of future profit to interest rate and investment returns;further investment asset losses/impairment inon-insurance businesses, such asbanking and asset management businesses.