Ping An, spending big on tech, says shares worth much more

Ping An Insurance (Group) Co’s shares have risen 77% over the past two years but that isn’t enough for chief insurance business officer Lee Yuan Siong.With the amount of money the company’s spending on R&D - about $1.6bn a year and climbing - and as the importance of technology to Ping An’s bottom line grows, he says investors haven’t yet come to realise the value of a customer base that has expanded by the equivalent of Canada’s population over the past 12 months.Ping An’s stock has “totally not reflected the value of our technology segment, or only reflected a very small part,” Lee said in an interview in Hong Kong on Wednesday after the insurer’s first-half results. “And it hasn’t fully reflected the advantages of our integrated financial services.”Combining the insurer’s 179mn clients with big data that can help in cross-selling is key to Ping An’s continued dominance in China, where it makes the bulk of its insurance and banking income. It’s also using its technical prowess to develop businesses it can spin off and list, hopefully at a premium. There’s internet lending platform Lufax, which turned profitable last year, and Ping An Healthcare & Technology Co, or Good Doctor, which allows people to access medical advice online for free.The company on Tuesday reported a 34% jump in net income for the first half. It now boasts 486mn users across all of its online platforms. (Individual clients, or those that have actually bought products, are distinct from the total number of people who access its internet portals.)Operating profit from fintech and healthcare technology businesses surged more than 10-fold, while Ping An added 25.8mn new customers in the six months. The conglomerate has added about 36mn new customers over the past 12 months, roughly equivalent to Canada’s population.When Bloomberg last spoke to Lee almost two years ago, he said then the company was undervalued by as much as 45%. “My view remains unchanged,” he said on Wednesday. “There remains a lot of room” for upside.Ping An’s Shanghai-listed stock closed 2.5% higher. China’s largest insurer by market value is trading at a price-earnings ratio of 9.3 times forward earnings versus 13.5 for China Life Insurance Co and 15.4 for New China Life Insurance Co Insurance stocks in China more generally have been under pressure this year as industry-wide premium income dropped and regulators moved to curb financial risks. Ping An has been selling its fintech to smaller financial institutions as it seeks to diversify its sources of income. The contribution from fintech and healthcare technology operations to group operating profit jumped by 6.4 percentage points to 7% of the total, according to its filing on Tuesday.Executives earlier said the group plans to plough more than 100bn yuan ($14.6bn) into R&D over the next decade and eventually generate about half of its earnings from tech.As more of the group’s tech units enter the profit- generating phase, such as Lufax, income from them “should be significant,” Lee said.While Good Doctor, for example, remains in its “traffic- building phase,” the company is “very confident” in its business model, he said, citing the potential from China’s large population. There are already some eight billion medical consultations a year in the nation.“If all eight billion come through the same entry point, then the value of that platform is massive,” Lee said.Lee also said that Ping An’s new business value “will resume relatively healthy and sustainable growth momentum,” adding that a 15% expansion in that gauge and a 10% increase in sales agents in the medium to long term was possible.The slower first-half growth in new business value was partly the result of Ping An’s adoption of Document 134, which reflects regulators’ tightened scrutiny on the sale of short- term insurance products. New business value for the second quarter increased 10% year-on-year but declined 8% in the first three months of 2018. He declined to comment on Ping An’s reported interest in Prudential’s Asian business. In response to a question on the risks of concentrating on a single geography, he said China is the world’s best life insurance market given its size and potential.“Many cities and provinces actually present far more room for growth to Ping An than any other single overseas market,” Lee said. “From an insurance perspective, we would focus on developing our home market.”