ZhongAn Online initiated its first placement since listing on 26 June (Thu) pre- market, with the offering price of HK$18.25 per share, implying an 8.5% discount compared to the last closing price of HK$19.94. An addition of 215mn new shares will be issued to no fewer than six placees with a lock-up period of 90 days after closing on 4 July, raising the total number of shares outstanding post placement to 1,685mn. The aggregate net proceeds amounted to HK$3,896.3mn (approx. US$496mn), of which the use will be focusing on 1) supplementing the Group’s capital position, 2) supporting investment in fintech innovations and 3) for general corporate purposes. We think the placement is beyond market expectations, yet could lead to limited downside to share price as it provides the company with greater flexibility in capital injection to enhance domestic P&C business’s solvency ratio and investments in AI-empowered infrastructure build-up. We maintain our FY25E earnings forecast at HK$1.0bn and the placement could result in 6.8% EPS dilution in FY25E, based on our estimate. Maintain BUY with TP at HK$20.4.
　　Use of proceeds will focus on core P&C insurance and AI infrastructure. The company organized a closed-door meeting pre-market on 26 Jun (Thu), emphasizing that the use of proceeds will mainly focus on the development of domestic P&C insurance, in particular health and auto ecosystems, and AI-empowered operational and compliance infrastructure. We keep our forecast of health/auto premium growth at 20%/22% in FY25E, driven by resilient demands for Zhong Min Bao Mid-to-High-End medical insurance and license obtained for providing compulsory auto insurance. By 1Q25, the core and comprehensive solvency ratios of ZhongAn P&C were 214.3%/220.4%, down 6.8pct/7.1pct QoQ, still well above the regulatory baseline of 50%/ 100%. However, mgmt. did not guide on stablecoin-related investments nor capital support to ZA Bank this time, which fell short of market expectation.
　　Limited downside risks despite short-term volatilities. ZhongAn’s share price spiked 64% from 21 May, the date on which the HK Legislative Council (LegCo) passed the Stablecoins Bill. Driven by improving market sentiment, stablecoin regulatory clarity, and the spill-over effect of Circle’s (CRCL US, NR) listing, the stock price has then fluctuated within a range of HK$17.5- HK$21.1, implying 1.08x-1.30x FY25E P/BV. The placement could lead to limited downside risks in our view, given the company’s strengthened capital reserve for core insurance business could accelerate growth and thus enhance earnings stability. Domestic P&C insurance accounts for 87% of Group total valuation in our model, and the next key catalyst will be 1H earnings release.
　　Maintain BUY with TP at HK$20.4. The stock is trading at 1.3x P/B as of 25 Jun. We are upbeat on the insurer’s earnings outlook in 1H25E underpinned by robust health and auto premium growth and improved combined ratio given a benign claims environment. In addition, ZA Bank’s breakeven can drive the segment re-rating to 3x-5x P/B over the long run, with reference to the reputable global digital banking peers (link). We maintain our projection of HK$1.91mn net profit for ZA Bank in FY25E and value it at 2.3x FY25E P/B. Maintain BUY with TP at HK$20.4 based on SOTP, which implies 1.36x FY25E P/B.