Ping An A-Shares Trade at Rare Discount as China Finance Hit

(Bloomberg) -- Concern that China will further free up bank deposit rates is prompting investors to dump financial stocks across the mainland, with insurers including Ping An Insurance (Group) Co. becoming collateral damage.

Ping An’s yuan-denominated shares are now trading at a discount to those in Hong Kong, where price moves are driven more by global sentiment than China policy. With less than six weeks to go before A-shares are included in MSCI indexes, investors are likely to focus on this discrepancy, which makes the insurer the only dual-listed financial stock to seem relatively cheap.

“The direction of that trend is likely to hinge on risk appetite of Hong Kong and global stocks in the near term,” said Bloomberg Intelligence analyst Steven Lam. “Ping An’s insurance operations are still sound and have a market-leading position. The potential spin-off of its technology-based units should continue to support valuations.”

Shares of Ping An fell 0.7 percent in Shanghai on Tuesday and were down 0.4 percent in Hong Kong. Analysts forecast a potential 12-month return of 36 percent for Ping An’s A-shares, compared with a 13 percent upside for bigger rival China Life Insurance Co. and 30 percent for China Pacific Insurance Group Co. Ping An’s A-shares are trading at 12 times its forecast 2018 price-to-earnings, compared with 17 times at China Life and 15 times at China Pacific.

‘Remains Undervalued’

Ping An remains undervalued as its core insurance business is still “cheap” relative to its rapid growth, President Alex Ren said last month. Moreover, it’s “not right” to still apply a discount on its integrated financial business model when valuing the conglomerate that spans insurance, banking, and asset management, he said.

Ping An has in recent years spent big on technology to make its insurance, banking and asset management businesses more competitive, and has started selling everything from online banking platforms to facial recognition systems to other financial firms in China and around the world. The company is seeking to generate half of its earnings from technology eventually, executives have said.

Ping An Insurance’s H-shares have almost doubled over the past year while its A-shares trailed with a 79 percent gain. Overall, dual-listed shares on the mainland traded at an average 23 percent premium over Hong Kong shares.

Foreign investors have bought a net 2.7 billion yuan ($430 million) of A-shares on average this month, heading for the highest purchase since the Hong Kong-Shenzhen stock connect started in late 2016, data compiled by Bloomberg show. Ping An was among the top net buying targets for four straight days.

--With assistance from Zhang Dingmin

To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net, Amy Li in Shanghai at yli677@bloomberg.net.

To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Jeanette Rodrigues, Russell Ward

©2018 Bloomberg L.P.

With assistance from Jun Luo, Amy Li