Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Better, But Off A Low Base: AIA Group (1299.HK) [AIA] will report 1Q21 operating metrics on May 14, 2021. We anticipate a low base YOY rebound in VONB to USD 950 mn (15%). Mainland China and Malaysia should be this quarter’s standouts, whilst Hong Kong likely exhibits yet another decline in 1Q21 due to the border closure with mainland China;  and * China And Hong Kong Risks Still Need To Be Addressed: Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary. In addition to the massive managerial distractions with so many deals at one time, there are negative tax implications for mainland Chinese subsidiaries versus branches; challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; and getting the BEA Life team on the same with AIA Hong Kong.

*Better, But Off A Low Base: AIA Group (1299.HK) [AIA] will report 1Q21 operating metrics on May 14, 2021. We anticipate a low base YOY rebound in VONB to USD 950 mn (15%). Mainland China and Malaysia should be this quarter’s standouts, whilst Hong Kong likely exhibits yet another decline in 1Q21 due to the border closure with mainland China;  and * China And Hong Kong Risks Still Need To Be Addressed: Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary. In addition to the massive managerial distractions with so many deals at one time, there are negative tax implications for mainland Chinese subsidiaries versus branches; challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; and getting the BEA Life team on the same with AIA Hong Kong. 

AIA Group – 1Q21 Preview; Better But Off Low Base

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

The leading Chinese insurance and healthcare platform <a href="https://www.smartkarma.com/entities/waterdrop-inc" target="_blank" data-smartkarma-citation="entities:33018:1" rel="noopener">Waterdrop Inc (WDH US)</a>  has set the terms for its US IPO. According to iResearch, Waterdrop was ranked the largest independent third-party insurance platform in China in terms of life and health insurance first year premiums (FYP) distributed in 2020.The company plans to issue 30m ADS’ at an indicative price range of US$10-12 per ADS. Each ADS represents 10 ordinary shares of the company and the offer represents about 7.6% of the company’s total outstanding shares post IPO. At the midpoint of the IPO price of US$11 per ADS, Waterdrop will raise net proceeds of US$301.6m (assuming over-allotment option is not exercised) at a market capitalisation of US$4.3bn and a post-money EV of US$3.7bn.A number of cornerstone investors have agreed to subscribe for at least US$210m worth of ADS’ offered at the IPO and these investors include Boyu Capital, HOPU Investments and Kevin Sunny Holdings. Waterdrop plans to use approx. 50% of the net IPO proceeds on enhancing and expanding its healthcare service and insurance business, 30% of the net IPO proceeds on R&amp;D and the remainder will be used for general corporate purposes.

The leading Chinese insurance and healthcare platform Waterdrop Inc (WDH US)  has set the terms for its US IPO. According to iResearch, Waterdrop was ranked the largest independent third-party insurance platform in China in terms of life and health insurance first year premiums (FYP) distributed in 2020.The company plans to issue 30m ADS’ at an indicative price range of US$10-12 per ADS. Each ADS represents 10 ordinary shares of the company and the offer represents about 7.6% of the company’s total outstanding shares post IPO. At the midpoint of the IPO price of US$11 per ADS, Waterdrop will raise net proceeds of US$301.6m (assuming over-allotment option is not exercised) at a market capitalisation of US$4.3bn and a post-money EV of US$3.7bn.A number of cornerstone investors have agreed to subscribe for at least US$210m worth of ADS’ offered at the IPO and these investors include Boyu Capital, HOPU Investments and Kevin Sunny Holdings. Waterdrop plans to use approx. 50% of the net IPO proceeds on enhancing and expanding its healthcare service and insurance business, 30% of the net IPO proceeds on R&amp;D and the remainder will be used for general corporate purposes.

Waterdrop IPO: Attractive at the Lower End of the IPO Pricing

*Pointless Shenzhen Deal: Ping An Insurance (2318.HK) [Ping An] has announced that it has agreed to invest CNY 37-51 bn in a restructured Founder Group, an unlisted mainland Chinese-controlled conglomerate. Under the proposal, Ping An will have own between 51.1%-70% of a newly formed entity called New Founder Group; and*Enough On Its Plate: In our view, Ping An has far too much on its plate to worry about than purchasing another company’s mess. There are weak fundamentals at Ping An Life, poor profit metrics at Ping An Property &amp; Casualty; and weak fundamentals at Ping An Bank. There are just so many IPOs and secondaries that Ping An can do with its FinTech investments to offset the insurer’s poor performance.

*Pointless Shenzhen Deal: Ping An Insurance (2318.HK) [Ping An] has announced that it has agreed to invest CNY 37-51 bn in a restructured Founder Group, an unlisted mainland Chinese-controlled conglomerate. Under the proposal, Ping An will have own between 51.1%-70% of a newly formed entity called New Founder Group; and*Enough On Its Plate: In our view, Ping An has far too much on its plate to worry about than purchasing another company’s mess. There are weak fundamentals at Ping An Life, poor profit metrics at Ping An Property &amp; Casualty; and weak fundamentals at Ping An Bank. There are just so many IPOs and secondaries that Ping An can do with its FinTech investments to offset the insurer’s poor performance.

People's Insurance (PICC) / Equity Bottom-Up

*Improving Profitability: PICC Group (1339.HK) [People’s] reported 1Q21 net profit after tax of CNY 10.0 bn, increasing by a whopping CNY 8.7 bn mn (6.7x) on a linked quarter basis. The linked quarter improvement can be attributed both to the PICC Life and PICC P&amp;C (2328.HK) whose bottom-line’s improved CNY 4.4 bn (vs a loss of CNY 1.8 bn in 4Q20) and CNY 3.8 bn (156.3%) - accounting for 61% and 27% of the group's earnings;  and *PICC P&amp;C Posts Big Expense Improvement: PICC P&amp;C (2328.HK) reported a 1Q21 net profit of CNY 8.9 bn, increasing 156.3% linked quarter. The overall combined ratio declined from 101.3% in 4Q20 to 95.7%. Compositionally, the overall expense ratio decreased 650 bp linked quarter to 25.4%, while the loss ratio increased 90 bp to 70.3%, reflecting a change in auto insurer’s cost structure after implementing pricing reforms.

*Improving Profitability: PICC Group (1339.HK) [People’s] reported 1Q21 net profit after tax of CNY 10.0 bn, increasing by a whopping CNY 8.7 bn mn (6.7x) on a linked quarter basis. The linked quarter improvement can be attributed both to the PICC Life and PICC P&amp;C (2328.HK) whose bottom-line’s improved CNY 4.4 bn (vs a loss of CNY 1.8 bn in 4Q20) and CNY 3.8 bn (156.3%) - accounting for 61% and 27% of the group's earnings;  and *PICC P&amp;C Posts Big Expense Improvement: PICC P&amp;C (2328.HK) reported a 1Q21 net profit of CNY 8.9 bn, increasing 156.3% linked quarter. The overall combined ratio declined from 101.3% in 4Q20 to 95.7%. Compositionally, the overall expense ratio decreased 650 bp linked quarter to 25.4%, while the loss ratio increased 90 bp to 70.3%, reflecting a change in auto insurer’s cost structure after implementing pricing reforms. 

Fintech & EM-focused Analyst, KT Capital Group

Alec Tseung

Fintech & EM-focused Analyst

<ul><li>Three major concerns/questions I'd ask regarding the potential IPO of <a href="https://www.smartkarma.com/entities/waterdrop-inc" target="_blank" data-smartkarma-citation="entities:33018:1" rel="noopener">Waterdrop Inc (WDH US)</a>:</li></ul><ol>
<li>
<a href="https://www.smartkarma.com/entities/waterdrop-inc" target="_blank" data-smartkarma-citation="entities:33018:1" rel="noopener"></a>Single monetization channel: as the company seeks further growth, can it really compete against the distribution channels of the tech and insurance giants in China?</li>
<li>
Insurance/product development potential: does the company have the expertise to develop its own products without just having to rely on the distribution channels?</li>
<li>
Valuation: if the investment thesis is to ride the growth of healthcare and medical insurance spending in China, isn't it more direct to invest in an online (or even traditional) insurer, which is at a much lower valuation?</li>
</ol>

Three major concerns/questions I'd ask regarding the potential IPO of Waterdrop Inc (WDH US):

Single monetization channel: as the company seeks further growth, can it really compete against the distribution channels of the tech and insurance giants in China?

Insurance/product development potential: does the company have the expertise to develop its own products without just having to rely on the distribution channels?

Valuation: if the investment thesis is to ride the growth of healthcare and medical insurance spending in China, isn't it more direct to invest in an online (or even traditional) insurer, which is at a much lower valuation?


Waterdrop Inc: Can the Water Keep Flowing After Its IPO?

China

China Life Insurance Company Ltd. offers a wide range of life, accident, and health insurance products and services.

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China Life Insurance (601628 CH)

AIA Group – 1Q21 Preview; Better But Off Low Base

AIA GROUP: AIA reports 1Q21 metrics on May 14. We expect a low base YOY rebound in VONB of 15%. With weaker organic growth, AIA went on a deal...

Thomas J. Monaco

Waterdrop IPO: Attractive at the Lower End of the IPO Pricing

Waterdrop plans to issue 30m ADS’ at an indicative price range of US$10-12 per ADS. At the midpoint of the IPO price, Waterdrop will raise net...

Shifara Samsudeen, ACMA, CGMA

Ping An Insurance - Totally Unnecessary

PING AN INSURANCE: Ping An has announced that it has agreed to invest CNY 37-51 bn in a restructured Founder Group. Ping An will own between 51.1%...

Thomas J. Monaco

PICC Group – Big Print

PICC GROUP: PICC reported QOQ 1Q21 net profit growth of 6.7x, attributed both to the PICC Life and PICC P&C (2328.HK) whose bottom-line’s each...

Thomas J. Monaco

Waterdrop Inc: Can the Water Keep Flowing After Its IPO?

Waterdrop Inc is an interesting company with good intentions. But these are the three major concerns one should pay particular attention to when...

Alec Tseung

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