March 12, 2019 / 9:49 AM / a month ago

Chinese insurer Ping An plans $1.5 billion buyback, would consider more

SINGAPORE/HONG KONG (Reuters) - Financial giant Ping An Insurance Group Co of China Ltd said it would return up to 10 billion yuan ($1.5 billion) to shareholders through its first share buyback, after posting a forecast-beating jump in annual profit.

FILE PHOTO: The logo of Ping An Insurance is seen at the Global Mobile Internet Conference (GMIC) at the National Convention Center in Beijing, China April 27, 2018. REUTERS/Damir Sagolj/File Photo

China’s largest insurer by market value said it planned to use 5-10 billion yuan of its own funds to repurchase its Shanghai-listed A-shares. Should it reach the top end of this range, it would be the fifth-largest buyback by a Chinese company, according to Refinitiv data.

The profit and buyback plan highlight Ping An’s strength compared with smaller players at a time of increased scrutiny of insurers’ use of leverage, which has seen some punished for risky practices.

Buybacks are often seen as a sign managers believe company shares are undervalued and can help boost the stock. Ping An’s executives have repeatedly said its stock has been undervalued by investors.

Ping An Insurance’s Shanghai shares closed up 3.3 percent at 71.54 yuan on Wednesday, in a broader market that fell 1.1 percent.

“It’s more as a mechanism whereby if the market is volatile and the management team believes the stocks are undervalued, this is one of the ways we can give back to the shareholders and at the same time stabilize the stock price,” Ping An’s co-chief executive, Jessica Tan, told Reuters in an interview in Hong Kong on Wednesday.

The move announced late on Tuesday comes after the Chinese securities regulators last year loosened rules governing buybacks by listed companies, according to Tan.

“We want to be one of the first ones to have the flexibility to do so,” she said, adding Ping An would consider more buybacks in future as long as the regulatory environment permitted.

The repurchase price for Ping An’s A-shares would not exceed 101.24 yuan a share, the company said in a statement as it released its annual results. That is up to 46 percent higher than the shares’ closing price at 69.25 yuan on Tuesday, before the results and buyback were announced.

PROFIT BEATS

The company said full-year profit rose 20.6 percent to 107.4 billion yuan in 2018, boosted by strong growth in its core life and health insurance business. That was above the 101 billion yuan Refinitiv-compiled SmartEstimate, which is weighted in favor of more accurate analysts.

As China’s most diversified insurer, Ping An has in recent years focused on technology and maintains a commitment to invest 1 percent of its annual revenue in research and development, although fintech and health technology accounted for about 6 percent to the group’s operating profit last year.

The only insurer in Asia deemed globally systemically important by regulators currently has 11 technology companies, six of which are still at an incubation stage and just two of which - online wealth management platform Lufax and online car purchase platform Autohome - are profitable.

“We will continue to invest. It’s easy for us to be a lot more profitable, but if we are serious about being a tech company we need to continue to do so,” Tan said.

A worker cleans the windows of a building in front of the Ping An Insurance building in Shanghai January 16, 2013. REUTERS/Aly Song/File Photo

The insurer is also looking for real estate-related investment opportunities, such as in rental apartments and nursing homes, as they are suitable, “counter-cyclical” assets for long-term stable returns, president Alex Ren said at a press conference on Wednesday.

Ping An has allocated about 7.5 percent of its insurance funds to properties, well below the 30 percent cap imposed by the Chinese regulator, he added.

Boosting Ping An’s bottom line in 2018 was its life and health insurance business, where net profit jumped 62 percent to 57.9 billion yuan from a year earlier. The company’s gross written premiums grew 19 percent to 719.6 billion yuan.

Reporting by Shu Zhang in Singapore, and Julie Zhu and Alun John in Hong Kong; Additional reporting by Kane Wu; Editing by Stephen Coates and Muralikumar Anantharaman

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