Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

Postal Savings Bank of China / Equity Bottom-Up

*Excess Provisioning Eats Away At 2Q21 Results: Established in 2007, Postal Savings Bank of China (1658.HK) [PSB] is mainland China’s youngest large commercial bank. PSB reported 2Q21 bottom-line results of CNY 19.9 bn – declining CNY 1.4 bn (6.6%) linked quarter. Excluding gains, PSB’s core operating results declined CNY 6.0 bn (36.0%) over the period. Results were impacted by significantly higher loss provisions and negative operating jaws; and
*Credit Quality Turns, But Reserves More Than Adequate: Net new NPLs increased CNY 14.9 bn and equate to an elevated 116.6% annualized – quite the difference from the CNY 9.3 bn or 18.4% annualized posted at year-end. Despite the accelerated increase in net new NPLs, it would appear that PSB’s reserves exceed known and potential credit risk to the tune of CNY 89.5 bn or over a year of pre-tax profits – begging the question of why the increase in loss provisions?

*Excess Provisioning Eats Away At 2Q21 Results: Established in 2007, Postal Savings Bank of China (1658.HK) [PSB] is mainland China’s youngest large commercial bank. PSB reported 2Q21 bottom-line results of CNY 19.9 bn – declining CNY 1.4 bn (6.6%) linked quarter. Excluding gains, PSB’s core operating results declined CNY 6.0 bn (36.0%) over the period. Results were impacted by significantly higher loss provisions and negative operating jaws; and
*Credit Quality Turns, But Reserves More Than Adequate: Net new NPLs increased CNY 14.9 bn and equate to an elevated 116.6% annualized – quite the difference from the CNY 9.3 bn or 18.4% annualized posted at year-end. Despite the accelerated increase in net new NPLs, it would appear that PSB’s reserves exceed known and potential credit risk to the tune of CNY 89.5 bn or over a year of pre-tax profits – begging the question of why the increase in loss provisions?

Postal Savings Bank of China – Way Too Conservative

*First Half Profits: ZhongAn Online P&amp;C Insurance (6060.HK) [ZhongAn] reported positive 1H21 bottom-line results of CNY 604.1 mn, an increase of CNY 840.2 mn over losses of CNY 236.1 mn in 2H20. Results were primarily driven by P&amp;C, which delivered profits of CNY 1.0 bn - tracking the improvement in underwriting profits (combined ratio of 99.4%) and investment performance (up 43.2% HOH); and *Heavy Handed Government: Increased scrutiny of the online insurance segment by the China Banking and Insurance Regulatory Commission’s (CBIRC) intimates the near wipeout of this current generation of online insurers. This regulatory onslaught is stifling innovation and likely will push business returns to well below the cost of equity.

*First Half Profits: ZhongAn Online P&amp;C Insurance (6060.HK) [ZhongAn] reported positive 1H21 bottom-line results of CNY 604.1 mn, an increase of CNY 840.2 mn over losses of CNY 236.1 mn in 2H20. Results were primarily driven by P&amp;C, which delivered profits of CNY 1.0 bn - tracking the improvement in underwriting profits (combined ratio of 99.4%) and investment performance (up 43.2% HOH); and *Heavy Handed Government: Increased scrutiny of the online insurance segment by the China Banking and Insurance Regulatory Commission’s (CBIRC) intimates the near wipeout of this current generation of online insurers. This regulatory onslaught is stifling innovation and likely will push business returns to well below the cost of equity.

ZhongAn Online P&C Insurance – Loss Ratio Improvement

*Weak Results Mask Improving Overall Fundamentals: Ping An Insurance (2318.HK) [Ping An] reported 1H21 results of CNY 58.0 bn, declining CNY 16.4 bn (22.0%) HOH.  Much of the struggle this half appears to be centered in Ping An’s investment portfolio which caused its net investment yield to plummet 80 bp to 4.1%. This resulted in substantial HOH net profit declines of CNY 20.4 bn (40.6%) and CNY 3.0 bn (48.4%) at Ping An Life (PAL) and Ping An Technology, respectively.  Excluding both write-downs, we note that Ping An’s HOH operating result would have actually improved CNY 8.2 bn or 11.0%; and*Concerns Increase At Bank And With Expansion Plans: Ping An Bank (000001.CH) [PAB] reported 2Q21 reported results of CNY 7.5 bn – decreasing CNY 2.7 bn (26.4%) linked quarter driven by credit concerns and weaker net interest income. In addition, Ping An is investing between CNY 37-51 bn in order to restructure the messy Founder Group, which will no doubt be a distraction for the Group just as fundamentals have begun to turn.

*Weak Results Mask Improving Overall Fundamentals: Ping An Insurance (2318.HK) [Ping An] reported 1H21 results of CNY 58.0 bn, declining CNY 16.4 bn (22.0%) HOH.  Much of the struggle this half appears to be centered in Ping An’s investment portfolio which caused its net investment yield to plummet 80 bp to 4.1%. This resulted in substantial HOH net profit declines of CNY 20.4 bn (40.6%) and CNY 3.0 bn (48.4%) at Ping An Life (PAL) and Ping An Technology, respectively.  Excluding both write-downs, we note that Ping An’s HOH operating result would have actually improved CNY 8.2 bn or 11.0%; and*Concerns Increase At Bank And With Expansion Plans: Ping An Bank (000001.CH) [PAB] reported 2Q21 reported results of CNY 7.5 bn – decreasing CNY 2.7 bn (26.4%) linked quarter driven by credit concerns and weaker net interest income. In addition, Ping An is investing between CNY 37-51 bn in order to restructure the messy Founder Group, which will no doubt be a distraction for the Group just as fundamentals have begun to turn.

Ping An Insurance – Looking Beyond The Investment Book

*Bank Results Decline Linked Quarter: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, continues to feel the challenges of a slowing mainland Chinese economy. For 2Q21, PAB reported results of CNY 7.5 bn – decreasing CNY 2.7 bn (26.4%) linked quarter. From our vantage point, higher loss provisions and weaker net interest income weighed heavily on results; and*Negative Credit Delta Could Accelerate Capital Raise: By our analysis, we find that credit remains incredibly challenged as net new NPLs have accelerated 102.2% annualized - up from 53.6% in 1Q21. Assuming the accelerated credit break in the PAB portfolio continues to remain at its current level, we find that PAB’s reserves still remain quite light by CNY 16 bn. This shortfall represents about two quarter of pre-tax earnings.

*Bank Results Decline Linked Quarter: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, continues to feel the challenges of a slowing mainland Chinese economy. For 2Q21, PAB reported results of CNY 7.5 bn – decreasing CNY 2.7 bn (26.4%) linked quarter. From our vantage point, higher loss provisions and weaker net interest income weighed heavily on results; and*Negative Credit Delta Could Accelerate Capital Raise: By our analysis, we find that credit remains incredibly challenged as net new NPLs have accelerated 102.2% annualized - up from 53.6% in 1Q21. Assuming the accelerated credit break in the PAB portfolio continues to remain at its current level, we find that PAB’s reserves still remain quite light by CNY 16 bn. This shortfall represents about two quarter of pre-tax earnings.   

Ping An Insurance – Credit Mixed, But Still Worrisome

*Adding More Complexity In Mainland China: AIA’s hyper-aggressive push into mainland China via acquisition as company fundamentals remain poor. This push unfortunately continues. On June 29, 2020, AIA Group (1299.HK) [AIA] announced that it has agreed to invest USD 1.86 bn (CNY 12 bn) in cash for a 24.99% stake in China Post Life (CPL), a subsidiary of China Post Group via its Hong Kong subsidiary, AIA Company Ltd; *Head Scratching Move: The CPL deal makes little sense financially, gives AIA no managerial or Board control, is limited to an equity investment without other business cooperation;  and directly competes with AIA China – despite management spin on the matter;  and *Suffocating Hong Kong Business: AIA’s core Hong Kong business has been an unmitigated disaster for during COVID-19, as it struggles with mainland Chinese visitors. Further, there is limited clarity on AIA’s legacy agents. It also has to deal with the fledgling Bank of East Asia (23.HK) business that it recently acquired.

*Adding More Complexity In Mainland China: AIA’s hyper-aggressive push into mainland China via acquisition as company fundamentals remain poor. This push unfortunately continues. On June 29, 2020, AIA Group (1299.HK) [AIA] announced that it has agreed to invest USD 1.86 bn (CNY 12 bn) in cash for a 24.99% stake in China Post Life (CPL), a subsidiary of China Post Group via its Hong Kong subsidiary, AIA Company Ltd; *Head Scratching Move: The CPL deal makes little sense financially, gives AIA no managerial or Board control, is limited to an equity investment without other business cooperation;  and directly competes with AIA China – despite management spin on the matter;  and *Suffocating Hong Kong Business: AIA’s core Hong Kong business has been an unmitigated disaster for during COVID-19, as it struggles with mainland Chinese visitors. Further, there is limited clarity on AIA’s legacy agents. It also has to deal with the fledgling Bank of East Asia (23.HK) business that it recently acquired. 

AIA – Now Competing With Itself In China

China

Ping An Bank Co Ltd provides a full range of commercial banking services including RMB and foreign currency deposit, loan, international and domestic settlement, discount, currency trading, letter of credit, bank guarantee, and other related services.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Ping An Bank Co Ltd A (000001 CH)

Postal Savings Bank of China – Way Too Conservative

POSTAL SAVINGS BANK: PSB's 2Q21QOQ core result increased 36.0% due to higher loss provisions and negative jaws. Despite the increase in net new...

Thomas J. Monaco

ZhongAn Online P&C Insurance – Loss Ratio Improvement

ZHONGAN ONLINE: ZhongAn reported a positive 1H21 bottom-line result, driven by improving P&C underwriting profits and investments. However,...

Thomas J. Monaco

Ping An Insurance – Looking Beyond The Investment Book

PING AN INSURANCE: Weak results mask PAI's improving overall fundamentals, as 1H21 HOH declined 22.0% mainly due to investment risk. Excluding the...

Thomas J. Monaco

Ping An Insurance – Credit Mixed, But Still Worrisome

PING AN INSURANCE: Ping An Bank reported a 26.4% QOQ results decline for 2Q21 reflecting higher provisions. Credit is challenged as net new NPLs...

Thomas J. Monaco

AIA – Now Competing With Itself In China

AIA GROUP: AIA’s aggressive push into China continues with its 25% stake in China Post Life. The deal makes little sense financially, gives AIA no...

Thomas J. Monaco

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)