Higher investment income lifts current- and next-year earnings, but spread pressure and bancassurance disruptions remain Ping An's near-term focus

Overview

The report assesses Ping An's 1H26 results and forecast revisions. Goldman Sachs believes improved investment income has alleviated some asset-quality concerns, but the core life insurance business faces a rapid decline in net investment yield and near-term disruption in the bancassurance channel. Nevertheless, the report still expects the company to achieve double-digit new business value growth and maintains Buy ratings on both its A-shares and H-shares.

Core views

First, asset-management-related performance in 1H26 partly addressed investors' concerns about asset quality. Although impairment losses increased year over year, stronger investment income provided an offset, which was also the main reason Goldman Sachs raised its FY26E net profit forecast by 12%. However, Goldman Sachs did not fully extrapolate this improvement into subsequent years, leaving its FY27E and FY28E net profit forecasts broadly unchanged. This indicates that the 1H26 investment gains primarily affect the near-term profit base rather than alter the medium-term earnings outlook. The report believes investors' attention will shift back to the core life insurance business in the near term, particularly the net investment yield. The non-annualized net investment yield declined by 0.4 percentage points in 1H26, not only faster than expected but also more than Goldman Sachs' estimated 0.3-percentage-point decline for full-year FY25. The company attributed part of the decline to year-over-year differences in the timing of dividend income recognition, but Goldman Sachs believes this explanation also implies that the 1H26 yield may be closer to the new normal. As more higher-yielding assets mature, reinvestment yields could remain under pressure. Management acknowledged that the 10-year bond yield falling below 1.7% again poses a challenge and expects to increase allocations to equities and alternative assets. Goldman Sachs believes recent measures allowing insurers broader participation in Stock Connect and Bond Connect may help stabilize investment yields, but they have not eliminated the pressures from low interest rates and the reallocation of maturing assets. The second core issue is the bancassurance channel. Ping An believes the new fee regulations, while causing near-term disruption, will make the bancassurance channel more attractive to insurers over the long term, and the company also emphasized the advantages of its multi-channel distribution platform. Goldman Sachs agrees that the economics of the bancassurance channel should improve over time, but expects slower sales to affect the near-term growth trajectory of new business value and therefore slightly lowers its FY26E new business value forecast. Even after the reduction, Goldman Sachs still expects Ping An to achieve its double-digit new business value growth target, indicating that its view is for a near-term growth disruption rather than a fundamental reversal of the life insurance growth thesis. Regarding earnings forecasts, in addition to raising its FY26E net profit forecast by 12%, Goldman Sachs also made minor adjustments to its operating profit forecasts. The higher profit contribution from Ping An Bank was partly offset by a lower profit forecast for Ping An P&C, reflecting divergent earnings trends across business segments. The report leaves its FY27E and FY28E forecasts broadly unchanged, also indicating that the current revisions are mainly concentrated on stronger-than-expected investment income in 1H26 and recent changes in the business mix. Regarding valuation, Goldman Sachs continues to use a sum-of-the-parts approach, valuing the life insurance, property and casualty insurance, and banking businesses separately. Ping An Life is valued at 1.9x and 2.4x FY27E P/B based on its return-on-assets forecasts; Ping An P&C is valued at 1.1x FY27E P/B, corresponding to a 12% FY27E return on equity; and Ping An Bank is valued using a target price/pre-provision operating profit multiple of 2.125x. After aggregation, the 12-month target prices for the H-shares and A-shares are trimmed from HK$74 and Rmb76 to HK$73 and Rmb75, respectively, corresponding to FY27E P/B multiples of 1.1x and 1.3x. 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 therefore maintains its Buy ratings on both listed share classes.

Analysis framework

Goldman Sachs first assesses the impact of 1H26 investment income and impairment losses on asset-quality concerns and current-period profit, and then analyzes how the decline in net investment yield, the interest-rate environment, and asset maturities transmit to the investment side of the life insurance business. It subsequently evaluates the near- and long-term effects of bancassurance fee regulation and channel disruption on new business value and adjusts its earnings forecasts accordingly. Finally, the report values the life insurance, property and casualty insurance, and banking businesses separately and derives the A-share and H-share target prices using a sum-of-the-parts approach.

Methodology notes

• Valuation MethodSOTP Valuation

  Sum-of-the-parts valuation

  The report values Ping An Life, Ping An P&C, and Ping An Bank separately, then aggregates the values of each component to derive the group's 12-month target prices for its A-shares and H-shares.

• Valuation MethodPB valuation

  FY27E P/B-based valuation of the insurance businesses

  Ping An Life is valued at 1.9x and 2.4x FY27E P/B, while Ping An P&C is valued at 1.1x FY27E P/B; the group's overall target prices correspond to 1.1x FY27E P/B for the H-shares and 1.3x for the A-shares.

• Valuation Method

  Target P/PPOP valuation

  The report applies a target price/pre-provision operating profit multiple of 2.125x to Ping An Bank and incorporates this valuation into the group's sum-of-the-parts result.

• Financial Industry-Specific Metric

  New business value growth analysis

  The report uses new business value to measure the economic value created by newly written life insurance business. It slightly lowers its FY26E forecast due to disruptions in bancassurance sales, while still expecting the company to achieve its double-digit growth target.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Ping An Insurance Group H-shares (2318.HK)

  The report maintains its Buy rating, with a 12-month target price of HK$73.00, implying 29.9% upside from the report price of HK$56.20.

  Strengths

  Strong investment income in 1H26, advantages from the multi-channel distribution platform, and the report's continued expectation of double-digit new business value growth.

  Weaknesses

  The net investment yield declined faster than expected, while near-term sales disruptions in the bancassurance channel may constrain new business value growth.

  Comparison

  The target price implies 1.1x FY27E P/B; the upside stated in the report is lower than for the A-shares.

  Risks

  Further declines in operating profit or contractual service margin, deterioration in the sales mix, and larger investment asset losses or impairments in non-insurance businesses.

• Ping An Insurance Group A-shares (601318.SS)

  The report maintains its Buy rating, with a 12-month target price of Rmb75.00, implying 40.6% upside from the report price of Rmb53.35.

  Strengths

  Higher-than-expected investment income supports the upward revision to FY26 earnings, while the life insurance, property and casualty insurance, banking, and other businesses underpin the sum-of-the-parts value.

  Weaknesses

  The low-interest-rate environment may continue to depress reinvestment yields, while adjustments in the bancassurance channel affect the near-term growth trajectory of new business value.

  Comparison

  The target price implies 1.3x FY27E P/B; the upside stated in the report is higher than for the H-shares.

  Risks

  Further declines in operating profit or contractual service margin, deterioration in the sales mix, and larger investment losses or impairments in non-insurance businesses such as banking and asset management.

Key data

• Change in 1H26 net investment yieldDown 0.4 percentage pointsOn a non-annualized basis, with the decline faster than expected.
• Estimated change in FY25 net investment yieldDown 0.3 percentage pointsGoldman Sachs estimate, smaller than the non-annualized decline in 1H26.
• 10-year bond yieldBelow 1.7%Management acknowledged that this level poses a challenge to investment income.
• Revision to FY26E net profit forecastRaised by 12%Primarily reflecting higher-than-expected investment income in 1H26.
• FY27E/FY28E net profit forecastsBroadly unchangedNo material revisions were made to the medium-term earnings forecasts.
• FY26E new business value forecastSlightly loweredReflecting recent sales disruptions in the bancassurance channel, although double-digit growth is still expected.
• 12-month H-share target priceHK$73.00Previously HK$74; the report price is HK$56.20, implying 29.9% upside.
• 12-month A-share target priceRmb75.00Previously Rmb76; the report price is Rmb53.35, implying 40.6% upside.
• Group target valuation1.1x FY27E P/B for the H-shares and 1.3x for the A-sharesImplied by the 12-month sum-of-the-parts target prices.
• Ping An Life target valuation1.9x/2.4x FY27E P/BBased on Goldman Sachs' return-on-assets forecasts.
• Ping An P&C target valuation1.1x FY27E P/BBased on a 12% FY27E return on equity.
• Ping An Bank target valuation2.125x P/PPOPIncluded in the group's sum-of-the-parts valuation.

Impact & implications

Goldman Sachs believes strong investment income in 1H26 improved near-term earnings performance and partly alleviated concerns about the asset quality of non-insurance businesses. However, declining investment yields in the life insurance business and disruptions in the bancassurance channel have shifted the operating focus back to the core life insurance business. Earnings revisions are concentrated mainly in FY26, while longer-term forecasts remain broadly stable. Although the target prices were trimmed slightly, they still offer substantial upside based on the report prices, so the Buy ratings are maintained.

Risks

• Further declines in operating profit and/or 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.
• Investment asset losses or impairments in non-insurance businesses such as banking and asset management could increase further.

What to watch

• Monitor peer comparisons of the decline in Ping An's 1H26 net investment yield after other life insurers report their results.
• Monitor the impact of maturing high-yield assets, changes in the 10-year bond yield, and increased allocations to equities and alternative assets on investment yields.
• Monitor the duration of sales disruptions caused by the new bancassurance fee rules and whether FY26 new business value can achieve double-digit growth.
• Monitor whether improving profits at Ping An Bank can continue to offset the impact of lower profits at Ping An P&C.