Investment returns ease asset-quality concerns, but pressure from investment yields and the bancassurance channel shifts focus to the core life insurance business
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Investment returns ease asset-quality concerns, but pressure from investment yields and the bancassurance channel shifts focus to the core life insurance business
Ping An's stronger investment returns in 1H26 offset the year-on-year increase in impairment losses, prompting Goldman Sachs to raise its FY26 net profit forecast by 12%. However, a larger-than-expected decline in the net investment yield and a significant slowdown in bancassurance sales may constrain near-term new business value growth; Goldman Sachs slightly lowers its target prices but maintains its Buy ratings.
- Stronger investment returns partly eased asset-quality concerns in the asset management business, although impairment losses increased year on year.
- The non-annualized net investment yield declined by 0.4 percentage points in 1H26, exceeding Goldman Sachs' estimate of a 0.3-percentage-point decline for FY25.
- The 10-year bond yield has again fallen below 1.7%, and the maturity of higher-yielding assets may create further reinvestment pressure.
- New fee regulations have disrupted bancassurance sales in the short term, but Goldman Sachs recognizes that the channel's long-term economics may improve.
- The FY26E net profit forecast was raised by 12%, while FY27E and FY28E forecasts were largely unchanged.
- The 12-month target prices for H-shares and A-shares were lowered to HK$73 and Rmb75, respectively, while the Buy ratings were maintained.
Report interpretation
Overview
The report reviews Ping An's 1H26 results and shifts the analytical focus from asset quality in the asset management business to the core life insurance business. Goldman Sachs believes that strong investment returns partly offset higher impairments, but a rapid decline in the net investment yield and short-term disruption to the bancassurance channel may weigh on new business value growth. While raising its FY26 net profit forecast, it slightly lowers its target prices and maintains its Buy ratings.
Core views
First, the 1H26 results partly addressed investors' concerns about asset quality in the asset management segment. Impairment losses in the segment increased year on year, but strong investment results provided an offset. Goldman Sachs therefore believes that asset-quality pressure has not yet fully translated into weaker overall profit performance. This is also the main reason it raised its FY26E net profit forecast by 12%. However, “partial relief” does not mean that the related risks have disappeared. Further investment-asset losses or impairments in non-insurance businesses could still weigh on earnings again. The report then shifts its near-term focus to the investment side of the life insurance business. The non-annualized net investment yield declined by 0.4 percentage points in 1H26, not only faster than Goldman Sachs expected but also exceeding its estimated 0.3-percentage-point decline for FY25 as a whole. The company stated that part of the difference resulted from a year-on-year timing mismatch in dividend-income recognition, but Goldman Sachs believes this explanation instead implies that the 1H26 net investment yield may become the new normal. As more higher-yielding assets mature, reinvestment yields may remain under pressure. Management also acknowledged that investing has become more difficult as the 10-year bond yield again fell below 1.7%, and it expects to increase allocations to equities and alternative assets. Goldman Sachs believes that the recent relaxation of rules allowing insurers to participate in Stock Connect and Bond Connect may help stabilize investment yields, but the report does not view this as eliminating the pressure arising from low interest rates and asset maturities. Another key theme on the liability side of the life insurance business is the bancassurance channel. New fee regulations have recently disrupted sales, and the marked slowdown in bancassurance sales may create downside risk to FY26 new business value. Ping An believes the new rules will make the bancassurance channel more attractive to insurers over the long term and emphasizes the advantages of its multi-channel distribution platform. Goldman Sachs agrees that the economics of the bancassurance channel should gradually improve, but expects the short-term disruption to continue affecting the trajectory of new business value growth. It therefore slightly lowers its FY26E new business value forecast, although it still expects the company to achieve its double-digit new business value growth target. Regarding earnings forecasts, Goldman Sachs raises its FY26E net profit forecast by 12% to reflect higher-than-expected investment returns in 1H26, while leaving its FY27E and FY28E net profit forecasts largely unchanged. This indicates that the upgrade mainly reflects current-period investment performance rather than an equivalent reassessment of medium- to long-term earnings capacity. Goldman Sachs also fine-tunes its after-tax operating profit forecasts: the profit forecast for Ping An Bank is raised, but this is partly offset by a reduction in the property and casualty insurance profit forecast, reflecting divergent earnings changes across business segments. The valuation uses a sum-of-the-parts approach. The 12-month target prices for H-shares and A-shares are lowered slightly from HK$74 and Rmb76 to HK$73 and Rmb75, respectively, corresponding to FY27E price-to-book ratios of 1.1x and 1.3x. In the segment valuation, Ping An Life is assigned FY27E price-to-book ratios of 1.9x and 2.4x based on Goldman Sachs' return-on-assets forecasts; Ping An Property & Casualty is assigned a 1.1x price-to-book ratio based on an FY27E return on equity of 12%; and Ping An Bank is valued at a target P/PPOP multiple of 2.125x. Based on the report's stated prices of HK$56.20 for the H-shares and Rmb53.35 for the A-shares, the target prices imply upside of 29.9% and 40.6%, respectively. Goldman Sachs maintains its Buy ratings on both share classes.
Analysis framework
Goldman Sachs first compares the actual 1H26 performance with the year-on-year results and its prior forecasts to assess whether investment returns can offset asset impairments. It then analyzes the impact of the net investment yield, bond yields, and the maturity of higher-yielding assets on the investment side of the life insurance business, before assessing the short- and long-term effects of the new bancassurance rules on channel economics and new business value growth. On this basis, the report adjusts segment-level earnings and group forecasts, and finally uses a sum-of-the-parts approach to value the life insurance, property and casualty insurance, and banking businesses separately, deriving 12-month target prices for the A-shares and H-shares.
Methodology notes
Sum-of-the-parts valuation
The report separately estimates the values of the life insurance, property and casualty insurance, and Ping An Bank businesses, then combines them to derive target prices for Ping An's A-shares and H-shares. This approach is suitable for a diversified financial group with materially different business structures.
Price-to-book valuation based on return on assets and return on equity
The report assigns the life insurance business FY27E price-to-book ratios of 1.9x and 2.4x, and assigns the property and casualty insurance business a 1.1x price-to-book ratio based on an FY27E return on equity of 12%. The group target prices correspond to FY27E price-to-book ratios of 1.1x and 1.3x.
Value of new business (VONB) growth analysis
The report uses new business value to measure value creation from new life insurance business. It slightly lowers its FY26E forecast due to sales disruption in the bancassurance channel, but still expects the company to achieve its double-digit growth target.
P/PPOP valuation
The report applies a target P/PPOP multiple of 2.125x to Ping An Bank, valuing the banking segment based on pre-provision operating profit and incorporating it into the group's sum-of-the-parts valuation.
Breakdown of investment returns, impairment losses, and segment profits
The report distinguishes among the FY26 profit upgrade driven by investment returns, the year-on-year increase in impairment losses, and the opposing changes in profit forecasts for the banking and property and casualty insurance businesses, in order to assess the sources and sustainability of the current earnings improvement.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Ping An H-shares (2318.HK)The report covers Ping An's H-shares, on which Goldman Sachs maintains a Buy rating and assigns a 12-month target price of HK$73.00.
- Strengths
- Investment returns in 1H26 exceeded expectations, while the multi-channel distribution platform helps address disruption in the bancassurance channel.
- Weaknesses
- The net investment yield declined faster than expected, and slower bancassurance sales may constrain near-term new business value growth.
- Comparison
- The target price corresponds to an FY27E price-to-book ratio of 1.1x; relative to the report's stated reference price of HK$56.20, the upside is 29.9%.
- Risks
- Further declines in operating profit or the contractual service margin, deterioration in the sales mix, and investment-asset losses or impairments in non-insurance businesses.
- Ping An A-shares (601318.SS)The report also covers Ping An's A-shares, on which Goldman Sachs maintains a Buy rating and assigns a 12-month target price of Rmb75.00.
- Strengths
- Investment returns in 1H26 exceeded expectations, while the multi-channel distribution platform helps address disruption in the bancassurance channel.
- Weaknesses
- The net investment yield declined faster than expected, and slower bancassurance sales may constrain near-term new business value growth.
- Comparison
- The target price corresponds to an FY27E price-to-book ratio of 1.3x; relative to the report's stated reference price of Rmb53.35, the upside is 40.6%.
- Risks
- Further declines in operating profit or the contractual service margin, deterioration in the sales mix, and investment-asset losses or impairments in non-insurance businesses.
Key data
- Change in 1H26 net investment yieldDown 0.4 percentage points (non-annualized)The decline was faster than expected and exceeded Goldman Sachs' estimate of a 0.3-percentage-point decline for FY25.
- Estimated change in FY25 net investment yieldDown 0.3 percentage pointsThe benchmark used by Goldman Sachs to compare the pressure on investment yields in 1H26.
- 10-year bond yieldBelow 1.7%Management cited this in acknowledging the challenging reinvestment environment.
- Revision to FY26E net profit forecastRaised by 12%Reflects higher-than-expected investment returns in 1H26.
- FY27E/FY28E net profit forecastsLargely unchangedThe earnings upgrade is primarily concentrated in FY26.
- FY26E new business value forecastSlightly loweredDue to recent sales disruption in the bancassurance channel, although Goldman Sachs still expects double-digit growth.
- H-share 12-month target priceHK$73.00Previously HK$74.00; based on a reference price of HK$56.20, the upside is 29.9%.
- A-share 12-month target priceRmb75.00Previously Rmb76.00; based on a reference price of Rmb53.35, the upside is 40.6%.
- Group FY27E target price-to-book ratioH-shares 1.1x; A-shares 1.3xCorresponds to the 12-month target prices derived using the sum-of-the-parts approach.
- Life insurance FY27E target price-to-book ratio1.9x/2.4xBased on Goldman Sachs' return-on-assets forecasts.
- Property and casualty insurance target price-to-book ratio1.1xBased on an FY27E return on equity of 12%.
- Ping An Bank target P/PPOP2.125xUsed to value the banking business in the sum-of-the-parts valuation.
Impact & implications
The report believes that the improvement in 1H26 investment returns is sufficient to raise the FY26 earnings forecast and ease asset-quality concerns in the asset management business to some extent, but the improvement has not translated into material upgrades to the FY27E and FY28E earnings forecasts. Low interest rates and the maturity of higher-yielding assets on the investment side, together with disruption to bancassurance sales on the liability side, will determine the subsequent performance of the core life insurance business. Although Goldman Sachs slightly lowers its target prices and FY26E new business value forecast, it still expects double-digit new business value growth and maintains its Buy ratings.
Risks
- Further declines in operating profit and/or the contractual service margin could create downside pressure on dividend growth.
- Further deterioration in the sales mix could increase the sensitivity of future profits to interest rates and investment returns.
- Additional investment-asset losses or impairments in non-insurance businesses such as banking and asset management could weigh on group earnings.
What to watch
- Monitor the declines in net investment yields reported by other life insurers in their subsequent results to compare their relative performance with Ping An's 0.4-percentage-point decline in 1H26.
- Monitor the maturity of higher-yielding assets, allocations to equities and alternative assets, and whether the relaxation of Stock Connect and Bond Connect policies can stabilize investment yields.
- Monitor the pace of recovery in bancassurance sales and its impact on the FY26 target of double-digit new business value growth.