Is Ping An Insurance State Owned

Elevator Pitch

I continue to have a Neutral rating for Ping An Healthcare and Technology Company Limited (OTCPK:PANHF) [1833:HK].

Ping An Healthcare’s stock toll has declined by -22% from HK$116.eighty every bit of February 24, 2021 to
HK$91.10 as of May 31, 2021, later on I published
my earlier update
on the company on February 25, 2021.

The recent investment by Ping An Healthcare’south parent has fatigued market attention. While the investee does ain synergistic healthcare assets, there are concerns about the potential conflicts betwixt shareholders’ interest and national interest. Separately, Ping An Healthcare is facing increased competition from its internet healthcare peers; its fundamental strength lies with having a leading insurance visitor as its parent.

Ping An Healthcare is valued by the market place at a discount to its Chinese internet healthcare peers with a consensus forward next twelve months’ Enterprise Value-to-Acquirement of 8.0 times. I retrieve that this is justified considering Ping An Healthcare’s lower expected acquirement growth and the other factors mentioned in this article. Every bit such, a Neutral rating for Ping An Healthcare is reasonable in my stance.

Parent’s Recent Investment Draws Market place Attention

Ping An Healthcare’s parent and largest shareholder is Chinese insurance company, Chinese insurance behemothic Ping An Insurance (Group) Company of Cathay, Ltd. (OTCPK:PNGAY) (OTCPK:PIAIF) [2318:HK]. Co-ordinate to South&P Upper-case letter IQ data, Ping An Insurance has a 38% disinterestedness interest in Ping An Healthcare. Although Ping An Insurance is not strictly seen equally a state-owned enterprise, a key shareholder of Ping An Insurance is Shenzhen Investment Holdings Co., Ltd. with a 5% pale, and Shenzhen Investment Holdings calls itself a “state-owned capital investment visitor” on its website.

On Apr xxx, 2021, Ping An Insurance disclosed that the company is participating in the restructuring of Peking University Founder Group Company Limited (or Founder Group). Founder Group is a country-controlled conglomerate started by China’s Peking University which went into defalcation last year. Every bit part of the restructuring efforts for Founder Group, Ping An Insurance will invest between RMB37.1 billion and RMB50.8 billion to larn an disinterestedness pale of betwixt 51.1% and 70.0% in the new restructured entity to be renamed as New Founder Group.

I accept a mixed view of the recent investment by Ping An Healthcare’southward parent.

On the negative side of things, at that place is speculation whether Ping An Healthcare’southward investment in New Founder Group was done because of “national service.” A May 3, 2021
South China Morning Post
news article quoted a sell-side analyst who was interviewed as proverb that “investors question how much the white knight (Ping An Insurance) will do good” from the investment, and “investors may also be concerned whether [Ping An] was tasked to save other companies by the regime, leading to some selling pressure (Ping An Insurance’s share cost declined -2.five% mail-announcement).”

Given that Ping An Insurance is Ping An Healthcare’s largest shareholder and parent, one cannot rule out the possibility that Ping An Healthcare might exist defenseless in the situation of being in a conflict between shareholders’ interest and national involvement in the future.

On the positive side of things, Ping An Insurance’s investment in New Founder Grouping brings positive synergies for Ping An Healthcare, as New Founder Group has a presence in the Chinese healthcare space as well. Specifically, New Founder Group’s healthcare businesses and assets include a hospital (Peking University International Hospital), a pharmaceutical company (PKU HealthCare Corp., Ltd.) and a healthcare it business (PKU Healthcare It Co., Ltd.).

Notably, Ping An Healthcare can potentially draw on New Founder Grouping’south off-line healthcare assets to complement its online healthcare and medical consultation services business concern. For case, Ping An Healthcare’s team of medical doctors could be farther strengthened with the addition of physicians from Peking University International Hospital. In Ping An Insurance’s media release, the company too stressed that it aims to build a “scenario-based, service focused, customer-centric and often-used healthcare ecosystem” by “combining the high-quality medical resource” of New Founder Group with the “medical technology capabilities” of Ping An Healthcare.

Also its parent’s recent investment, increased contest is another key cistron that influences Ping An Healthcare’s bewitchery every bit a potential investment candidate, which I hash out in the next department.

Competition From Other Online Healthcare Players And Hospitals

The three major listed Chinese healthcare companies are Alibaba Health Information technology Express (OTCPK:ALBHF) [241:HK], JD Health International Inc (OTCPK:JDHIF) (OTCPK:JDHIY) [6688:HK], and Ping An Healthcare. The beginning ii companies are relatively more focused on direct and 3rd-party sales of healthcare products, while Ping An Healthcare is the largest healthcare company in Communist china in terms of medical consultation services.

It is noteworthy that Alibaba Healthcare highlighted at its contempo FY 2021 (YE March) earnings call (transcript and audio recording non publicly available) concluding calendar week on May 26 2021 that it sees monthly active users for its new “Dr. Deer” medical consultation app (kickoff introduced to the marketplace in September 2020) eventually rise from over one million now to x million in due course. Although Ping An Healthcare has more than lxx 1000000 monthly active users equally of the stop of last year, if Alibaba Healthcare continues to grow its medical consultation services business, it could come at the expense of market place share loss for Ping An Healthcare in the future.

Separately, it is likewise possible that certain infirmary operators or medical institutions in Prc might cull to build their ain online medical consultation services, rather than partnering with Ping An Healthcare or its peers. However, with medical consultation services business in China currently still in its early stages of growth (five% penetration charge per unit in 2020), it might not be efficient for hospital operators to divert their doctors and healthcare resources to the online medical consultation services infinite. Nonetheless, the potential entry of hospitals into the online medical consultation services market remains a long-term threat for Ping An Healthcare.

While acknowledging the competition from other online healthcare players and hospitals, Ping An Healthcare does take its unique edge. Most importantly, Ping An Healthcare has privileged access to the corporate and insurance customer segments because of its parentage (Ping An Insurance). In contrast, online healthcare players such as Alibaba Health and JD Health are more than likely to gain market share from Ping An Healthcare in the consumer channel.

A growing market attracts contest, and the competitive landscape tends to be very fluid for such high-growth markets in their early phases such as internet healthcare. As such, it is critical to proceed monitoring the operation of Ping An Healthcare’southward competitors to encounter if the company tin can maintain its lead in Communist china’due south online medical consultation services market in the medium to long term.

Valuation and Risk Factors

Ping An Healthcare is valued by the marketplace at 8.half dozen times consensus forrard Enterprise Value-to-Revenue and half-dozen.four times consensus forward Enterprise Value-to-Revenue, co-ordinate to its share cost of HK$91.ten as of May 31, 2021.

Ping An Healthcare trades at a discount to its Chinese cyberspace healthcare peers on the frontward Enterprise Value-to-Acquirement valuation metric, equally per the peer valuation comparison table below. I think this is fair, taking into account the relatively more modest revenue growth expectations for Ping An Healthcare in the subsequent two years.

Peer Valuation Comparison For Ping An Healthcare

Source: Due south&P Upper-case letter IQ

Ping An Healthcare’southward key risk factors include a potential disharmonize of interests between shareholders and the state in the future, and increased competition from both existing rivals and new entrants.