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Better Buy: Ping An Insurance vs. AIA Group

Ping An Insurance Group Co of China Ltd (SEHK: 2318) and AIA Group Ltd (SEHK: 1299) need no introduction. They are two large insurance companies listed on the Hong Kong Stock Exchange. Over the last five years, Ping An shares have delivered a return of 79.9% to shareholders, while AIA Group’s shares have clocked a gain of 32.3%.

So, let’s take a look at both the insurance behemoths. From this, we can decide which might be a better buy now for long-term investors.

Business Differences

While both Ping An Insurance and AIA Group seem to be in a similar business, there are some key differences between their operations.

Ping An reported a growth of 18.1% in operating growth for the year ended 31 December 2019. The main business segments include life and health insurance (66.2% of operating profit), property and casualty insurance (15% of operating profit), and banking (12.3% of operating profit).

These three segments make up the bulk of Ping An’s business with smaller contributions seen from its securities, technology and other asset management segments. Geographically, Ping An’s business is mostly focused in China.

AIA Group, on the other hand, operates in many countries in Asia including Hong Kong, Thailand, Singapore, Malaysia, China, and more.

AIA Group’s business activities are mostly focused on life and health insurance products. Geographically, AIA is more diverse, its reported operating profits of US$5.74 billion for the 12 months ended 31 December 2019 which came from Hong Kong (34%), Thailand (18.5%), and China (18.5%), while other markets, Singapore and Malaysia make up the rest.

While Ping An has a more diverse business with profit contributions from both insurance, banking and other segments, AIA is more geographically diverse. As such I am calling this one a tie.

Winner: It’s a tie

Historical growth

For financial services companies, one of the key metrics investors should track is the book value per share. On this front, Ping An comes out on top.

From 2015 to 2019, Ping An’s book value per share compounded at 20.5% per year from RMB 15.83 to RMB 33.36. AIA Group’s not fair behind, as its book value per share grew by a slower 13.05% from US$2.45 to US$3.54 between November 2016 and  December 2019.

From a dividend-growth perspective, Ping An also comes out ahead. AIA Group’s dividend per share compounded at 16.25% from HK$0.6972 in the financial year ended 30 November 2015 to HK$1.266 in 2019.

But Ping An’s dividend per share has increased at a compounded rate of 40.1% per year from RMB 0.53 in 2015 to RMB 2.05 in 2019.

Winner: Ping An Insurance

Valuation

While Ping An has seen higher growth over the past years, let’s look at both insurers’ valuation using the Price-to-book (PB) ratio to see which might be a better bargain currently.

At the time of writing, Ping An’s shares are trading for HK$73.60 giving it a PB ratio of 2.21. Similarly, AIA Group’s current share price of HK$64.95 resuling in a PB ratio of 2.36. Thus, the lower PB for Ping An indicates it is a better buy at the moment.

Winner: Ping An Insurance

Final call

Both insurance companies have performed well over the past years. However, when comparing them head to head, Ping An has come out on top.

The higher growth rate and lower valuation makes the China-focused insurance giant more attractive currently.

 

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Saket Jhajharia doesn’t own shares in any companies mentioned.