Ping An:Strong life dividend

subsidiary last year upstreamed a special dividend on strong profit andcapital generation, allowing the group to raise full-year dividend by 42%.P&C combined ratio was also a beat on better underwriting in auto andcredit guarantee. We raise our target price to HK$48 from HK$45;reiterate the Outperform rating. It is our preferred stock in the insurancecoverage –management is willing to show us more money.

Life dividend up 150% YoY

Ping An’s 2016 results confirm our confidence in its operations. The lifesubsidiary paid a total dividend of Rmb17.3bn to the group, up 150% YoY,including a final of Rmb8.4bn for 2015 and an interim/special of Rmb8.9bnfor 2016. The switch to C-ROSS allows the business to capitalise future profit.With a stronger solvency position, it can be more generous with dividend.

Best proof of business quality

Nothing matters more than dividend, real cash paid to shareholders. Whilethe market likes to focus on EV and NBV for they reflect better the growthpotential, the metrics are based on assumptions and the future value maynever materialise in full. With the generosity of life, Ping An raised its owndividend to shareholders by 42% to Rmb13.7bn, or 0.75 per share, on 15%growth in net profit (in-line with our estimate), representing a 22% payout.

P&C also a beat

We would certainly want more dividend. Alas, Ping An does have aggressivegrowth ambitions, such as in internet finance, which do consume capital andaren’t profitable yet. At the least, most established operations are doing well.In P&C, the combined ratio only went up to 95.9% from 95.6%, much betterthan expectations as auto underwriting profit doubled and credit guaranteeremained highly profitable with an estimated well-below-70% combined ratio.

Top pick

There were hiccups in securities and trust last year. But the crown jewelinsurance remains robust. We raise our target price to HK$48 from HK$45 toreflect better cash remittance and retain O-PF. The stock is the only Chinainsurance stock that trades at a premium to A shares. But it is also the mostdefensive in case of any retreat by southbound, for only 0.9% H shares ofPing An are held via the Connect, vs peers at 5.5% on average.