One Potentially Bullish Development for Ping An

3M(NYSE:MMM)在過去三年股價跑輸大市,但股息率約3.5%,可以低吸嗎?

There is now another reason to own Ping An Insurance Group Co of China Ltd (SEHK: 2318).

According to Bloomberg, Ping An’s Lufax is aiming to go public as early as later this year. 

The company reportedly aims to raise at least US$3 billion by selling shares on New York Stock Exchange (NYSE). 

If the IPO goes well, Ping An as Lufax’s parent company could benefit greatly. Here’s more. 

Lufax

In the early part of the last decade, Ping An created Lufax as a peer-to-peer (P2P) lender. 

Due to strong demand for P2P services in China, Lufax became one of the world’s most valuable fintechs. 

Latest changes in government regulations, however, had led Lufax to transition to a different business model. The company now has a big wealth management business.

How Ping An could benefit

If Lufax’s US IPO goes well, Ping An could benefit in two ways.

If the company receives a higher-than-expected valuation on its IPO, Ping An’s sum of parts could be worth more.

Ping An could also be known for its fintech capabilities, a reason for investors to be bullish in 2020 as the sector experienced strong growth despite greater market downward pressure. 

Tailwinds

In addition to the potential Lufax development, Ping An will benefit from numerous tailwinds, both in the near and long term. 

Firstly, Ping An would benefit from the anticipation of Alibaba-backed Ant’s eventual IPO. 

Given Alipay’s potential, Ant could be valued at a lot more than US$200 billion in its debut. If its IPO goes well, there will be more positive sentiment for the fintech sector and its players. 

Another near-term tailwind is a recovering Chinese economy. 

For the second quarter, China’s economy grew faster than many estimates, at 3.2% year on year after the country’s economy shrank 6.8% in the first quarter due to the coronavirus outbreak. This is a positive sign for the companies in the country. If the rest of the world rebounds faster, China’s economy could also benefit with the trade relations.

With economic growth recovering in China, China’s stock market has rebounded. Higher equity prices and potentially higher interest rates in the future (due to recovering economic growth) can be positive for insurers. 

Also, with many analysts more bullish on the development of a successful COVID-19 vaccine, there’s more hope that things will eventually return to normal faster. If things return to normal faster, Ping An could potentially do more business because face to face selling is easier. 

In the long term, PingAn benefits from secular tailwinds such as rising incomes and the continual development of China’s economy. 

Competition Headwind

Ping An still faces fierce competition. One of the biggest developments in the insurance sector is China’s government recently allowing AIA to expand in the country easier. 

Although foreign insurers expanding in China could slow Ping An’s growth, the firm’s fundamentals are still strong and its valuation is attractive enough that there is still a lot of upside. 

Foolish Conclusion

Ping An is a high-quality insurer with numerous tailwinds supporting it both near and long term. A potential Lufax IPO could be another reason to own the stock. 

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