28 February 2018 | 5:21PM HKT

Ping An Group (2318.HK) Innovative to the Core; Reiterate Buy (on CL)

          Mancy Sun +852-2978-6072 | [email protected] (Asia) L.L.C.           

As China’s largest publicly-traded financial , Ping An Key Data ______Insurance Group is using its in-house developed technology         initiatives - like image-based risk verification - to deliver industry   ! "#$ leading productivity and efficiency, market share gains and resilient %&  earnings growth. It is also utilizing this technology infrastructure at # '( )*  )+ # its banking subsidiary, Ping An (recently up to Buy, added to ______Conviction List), and in other vertically-integrated ecosystems like GS Forecast auto and health, to leverage the group’s large retail user base and            comprehensive financial products offering.               !"# $     Although Ping An H/A’s share prices are up 120%/97% since the % &     beginning of 2017, we believe investors have yet to fully price in the '() $     %* &     above-industry returns its technology initiatives are enabling in core  $     %+ &     businesses, ranging from insurance to internet finance. We view these returns as sustainable and therefore deserving of valuation          premiums, as Ping An uses its significant investment in R&D, 500+ data scientists, and 2,000+ global patents to sustain and further develop its unified FinTech ecosystem. Our SOTP-based 12-month GS Factor Profile ______

H/A target prices of HK$113/Rmb88 (from HK$107/Rmb88) imply  For the exclusive use of [email protected] 32%/26% upside potential; reiterate Buy (on Conviction List).    

  

  

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Source: Company data, Goldman Sachs Research estimates. See disclosures for details.

Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S. Goldman Sachs Group (2318.HK)

Ping An Insurance Group (2318.HK) Balance Sheet (Rmb mn) ______    Buy CL Rating since Feb 24, 2009                        Ratios & Valuation ______!"           # $% & %' (            ) * '             ) + "             ),,             -*                      !"      #$%#$&#     # ***      !'"        *'.      !($ )* $"         '"      +,-      -* "       !,-$##$#&$"                 Growth & Margins (%) ______            -*.*   // // // //            0 *  1*              ! "         ! " # $ #  #$ % # #     #      & '"" "  ( ( % # ( ( ( ) )23,4$5"(     Price Performance ______)6"    . $7( $(           Source: Company data, Goldman Sachs Research estimates.  

 

 

 

 

 

     

             ! Source: FactSet. Price as of 27 Feb 2018 close. Income Statement (Rmb mn) ______                            ! " # !                For the exclusive use of [email protected] $%&' ( !   )*$       "( '       +  !  #      $%&          "! " #                

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0$12  ! "# !3 2     4$13 2    

28 February 2018 2 Goldman Sachs Ping An Insurance Group (2318.HK) Table of Contents

Where are we challenging consensus? 4

What drives top line, margins and ultimately, earnings? 6

What catalysts could drive the share price? 9

The Feature Picture 10

Does the company have a moat? 12

How do we value the company and why? 14

How does the company invest? 17

What could go wrong? 19

Quantamentals 23

ESG Overview 26

Appendix 27

MSCI disclosure 29

Disclosure Appendix 30 For the exclusive use of [email protected]

28 February 2018 3 Goldman Sachs Ping An Insurance Group (2318.HK) Where are we challenging consensus?

This report was written by We believe investors do assign some value to Ping An’s tech initiatives, but that they Mancy Sun, Thomas Wang, tend to value them as separate entities. We point out that the value does not only come Stanley Tian, and Dan Cao from the internally incubated tech companies (that either already have or deserve a separate valuation). The multi-year investment in tech creates significant synergies with Ping An’s core businesses (such as life, P&C and banking), resulting in higher return and high growth prospects for these businesses, and hence should be rewarded with higher valuation multiples . In many cases, this is already visible. Both Ping An Life and Ping An P&C have much higher return (ROEV or ROE) than peers. This is indeed a result of Ping An’s general focus on value/productivity and operational control, but technology is the key enabler for Ping An to achieve and sustain those goals.

n Jin Guan Jia enables agents to promote customer development and cross-sell diversified financial products in various scenarios;

n Ping An’s investment in the healthcare/health-tech value chain is beneficial fundamentally, as it helps Ping An to better price its protection products (which are 73% of life new business value as of 1H17);

n Smart insurance cloud helps to reduce fraud risk and control expenses, thanks to image-based risk verification technology; and

n also benefits from a lower cost-income ratio and the synergy gained from Ping An’s user base and technology infrastructure, as it transforms towards higher ROE retail banking.

In The Feature Picture section, we map out Ping An’s technology infrastructure and healthcare initiatives, and explain how they might benefit Ping An’s core businesses and enhance shareholder value.

Therefore, we are confident that Ping An will continue to deliver higher returns and For the exclusive use of [email protected] growth from its core businesses over the next three years. In terms of net profit forecasts, GSe FY18/19 EPS are 6%/12% above Bloomberg consensus.

28 February 2018 4 Goldman Sachs Ping An Insurance Group (2318.HK)

Exhibit 1: At the group level, Ping An looks best positioned among Exhibit 2: We expect Ping An Life to maintain higher ROEV its peers compared to other listed life insurers Listed Insurers’ ROE since 2015 Listed life insurers’ operating ROEV since 2015

25% Ping An China Life CPIC NCI Taiping PICC Group 35% Ping An China Life CPIC NCI Taiping PICC Life

30% 20% 25%

15% 20%

15% 10%

10% 5% 5%

0% 0% 2015 2016 2017E 2018E 2019E 2015 2016 2017E 2018E 2019E

Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research

Exhibit 3: Similarly, Ping An P&C has the lowest combined ratio Exhibit 4: PAB’s retail business is already profitable, with 31% compared to its peers retail ROE vs 18% for our sample group Listed P&C insurers’ combined ratio since 2015 China retail ROA and ROE in 2016

102% Ping An CPIC Taiping PICC P&C Retail ROA Non-mortgage retail ROA 101% 4.0% Retail ROE (RHS) Non-mortgage retail ROE (RHS) 40%

100% 3.5% 35%

99% 3.0% 30%

98% 2.5% 25%

97% 2.0% 20% 1.5% 15% 96% 1.0% 10% 95% 0.5% 5% 94% 0.0% 0% 93%

92% 2015 2016 2017E 2018E 2019E

Source: Company data, Goldman Sachs Global Investment Research Source: Company data For the exclusive use of [email protected]

28 February 2018 5 Goldman Sachs Ping An Insurance Group (2318.HK) What drives top line, margins and ultimately, earnings?

Ping An has four main business lines, insurance (life and P&C), banking, investment management, and internet finance. Insurance remains the largest operating segment, contributing 77%/65% of FY18-20E group revenue/profit. This is driven by strong growth in life insurance, with 25%/26% revenue/profit growth CAGR vs. 10%/10% for P&C insurance.

Despite some uncertainties around January 2018 jumpstart sales, we continue to expect Ping An Life to deliver one of the fastest new business value (NBV) growth rates over FY18-20E. This is enabled by Ping An’s superior distribution capability and better (FinTech-enabled) client relationship management.

Exhibit 5: Insurance (Life and P&C) remains the largest operating segment Ping An net profit breakdown by segment (Rmb mn)

54,203 52,897

25% 18% 43,427

39,279 12% 9% 24% 1% 23% 17% 28,154 Others 29% Internet 8% 23% 16% 20,050 23% Banking 28% P&C insurance 10% 22% Life insurance 34% 21% 54% 42% 23% 40% 35% 43% 32%

-6% -8% 2012 2013 2014 2015 2016* 1H17 * 2016 profit excludes the one-off gain of Rmb9,247mn from the Puhui Financial transactions For the exclusive use of [email protected]

Source: Company data

28 February 2018 6 Goldman Sachs Ping An Insurance Group (2318.HK)

Exhibit 6: We expect Ping An Life to deliver one of the fastest new Exhibit 7: ...driven by Ping An’s superior distribution capacity business value (NBV) growth rates among its peers... Ping An vs peers’ agent productivity (average regular FYP per agent per Ping An vs peers’ NBV growth month, Rmb)

Ping An Peer Average Ping An Peers 46% 11,904 40%

32% 33% 31% 30% 29% 7,687 7,933 8,048 26% 7,040 23% 22% 5,435 4,893 4,489

2015 2016 2017E 2018E 2019E 2014 2015 2016 1H17

Source: Company data, Goldman Sachs Global Investment Research Source: Company data

Exhibit 8: Ping An’s technology enables superior distribution Exhibit 9: ...and an innovative sales model, to improve client channel management... relationship management Ping An’s NBV breakdown Ping An’s innovative real-time communication sales model

Tele- Financial T Avg agent service Products Agency First-year force FKDQQHO¶V premium Activity rate NBV in force New policies 46,413 per mth per Social Agent Customer ³0DJLF 34,393 Traffic NBV agent Policies per platform app app *DWH´ NBV active agent 50,805 margin Premium per month 38,420 income per policy Life 4,392 Service 4,027 Delivered Increases in both agency Products Other scale and per agent productivity FKDQQHO¶V 2016 NBV 2015 (in RMB million)

Source: Company data Source: Company data

For the exclusive use of [email protected] For Ping An Bank, the second largest segment, we also expect to see an inflection in earnings growth in 2018, driven by growth in retail assets and expanding interest margin. Please refer to the note Ping An Bank - Consumer Lending 3.0 , January 18, 2018 for more details.

Ping An Bank’s shift towards retail business aligns itself with Ping An Group’s retail-focused strategy, allowing it to leverage Ping An Group’s large retail customer/user base and comprehensive financial products offering.

28 February 2018 7 Goldman Sachs Ping An Insurance Group (2318.HK)

Exhibit 10: Ping An Bank is shifting towards more profitable retail business Retail vs. corp assets cost and income waterfall analysis for PAB (2016)

8.0% 2.4% 3.2% 7.0%

6.0% 5.0% 5.0% 0.9% 4.0% 0.8% 1.2% 0.7% 3.0% 2.5% 1.0% 2.0% 1.6% 0.3% 1.0% 0.8%

0.0% NII Non-II Opex Provision Tax ROAA NII Non-II Opex Provision Tax ROAA Retail Corporate

Source: Company data, Goldman Sachs Global Investment Research

We also highlight Ping An’s internet finance businesses which, as a whole, have become profitable in FY17 for the first time (excluding one-off gains). While we do not expect material profit generation from the internet finance businesses, it does remove an earnings drag for Ping An and is incrementally accretive to ROE. For the exclusive use of [email protected]

28 February 2018 8 Goldman Sachs Ping An Insurance Group (2318.HK) What catalysts could drive the share price?

Relatively weak share price performance over the past months (for Ping An as well as other life insurers) is partly due to a lack of official data releases. While overall January new business sales were weak, we believe sales of (higher margin) protection have remained solid, as the new product regulations mainly affected savings products. The structural demand for protection product coverage appears to remain intact. We expect FY17/1Q18 results, end of March/April, to show resilient growth in protection product sales and VONB margin expansions , removing FY18 growth concerns. This should lead to improvements in sentiment and valuation re-ratings for the Chinese insurers, especially Ping An.

Exhibit 11: January sales are heavily weighted towards Exhibit 12: The decline of savings product sales has a much low-margin savings products smaller impact on NBV given lower contribution from these Ping An NBV contribution vs NBV margin by quarter low-margin products Ping An agency NBV by product

FYP as % of FY NBV as % of FY NBV/FYP Margin 100% 4% 3%

60% 56% 55% 53% 52% 51% 80% Short-term insurance 50% 43% 60% 73% 40% 45% 81% 40% 31% Long-term protection 40% 30% 26% 26% 26% 26% 22% 22% 29% 20% 26% 20% 20% 21% Savings 20% 19% 20% 24% 18% 18% 15% 10% 0% 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17E FY16 1H17

Source: Company data, Goldman Sachs Global Investment Research Source: Company data

More disclosure about Ping An’s FinTech platforms , and the positive benefits they have on the traditional financial services business, would help investors to better understand the value proposition of its technology strategy. This could come at FY17 For the exclusive use of [email protected] results (end of March) or targeted investor presentations (e.g., July 2017 FinTech presentation).

Furthermore, one of Ping An’s FinTech subsidiaries, Ping An Good Doctor, has filed an IPO application to list on the Hong Kong Exchange. Not only should this bring increased disclosure, but it may also allow better value discovery. A potential spin-off, if any, could also be another catalyst for valuation re-rating.

28 February 2018 9 Goldman Sachs Ping An Insurance Group (2318.HK) The Feature Picture

We think the market has not yet fully comprehended the key components of Ping An’s technology investments and how they might benefit its core businesses or valuation. In this section, we map out Ping An’s technology infrastructure and healthcare initiatives - from Ping An’s technology export process to the overall healthcare ecosystem, and aim to explain how they might benefit Ping An’s core businesses and enhance shareholder value.

We highlight that, in many cases, Ping An has built the technology platform out of necessity, due to: 1) a lack of suitable external vendor; and 2) potential to improve internal processes. As these technology initiatives mature, the ability to export this technology know-how has opened up new markets for Ping An.

A good example is its ability to tap the small-and-medium banks segment in China, which represents 40% of banking industry assets in China vs. c.1% for Ping An Bank. In this case, the export of technology also benefited from CBRC’s policy stance to encourage all banks to migrate IT systems to a cloud platform by 2020. For the exclusive use of [email protected]

Source: Company data, Experian, Goldman Sachs Global Investment Research

28 February 2018 10 Goldman Sachs Ping An Insurance Group (2318.HK) For the exclusive use of [email protected]

Source: Company data, Goldman Sachs Global Investment Research

28 February 2018 11 Goldman Sachs Ping An Insurance Group (2318.HK) Does the company have a moat?

We believe Ping An’s moat is built on three competitive advantages:

1. Strong brand premium, with large existing customer base in its traditional financial businesses and online user base in its tech-driven eco-systems; 2. Comprehensive financial licenses; and 3. Early mover advantage and continued investments in the integration of technology with traditional financial services, with Rmb50bn invested in the past decade and 1% of revenue (c.Rmb8bn, or c. US$1.2bn in 2017) invested annually. This ranks the company fifth in the world in financial services R&D spending for FY16/17 and, more importantly, in the top 50 among tech companies (ahead of Sharp and Twitter but below the likes of and HP 1).

Exhibit 13: Comparisons between Ping An and other financial institutions and tech companies For the exclusive use of [email protected]

Source: Company data, Goldman Sachs Global Investment Research

Tech-savvy customer/user base

Ping An already has a large customer base in its traditional businesses (143mn as of 1H17), which is weighted towards tier-1 cities and more-developed coastal regions. Its various online platforms and Apps have also gathered a large following, with 430mn/312mn registered Internet/App users as of 3Q17.

1 According to The 2017 EU Industrial R&D Investment Scoreboard.

28 February 2018 12 Goldman Sachs Ping An Insurance Group (2318.HK)

Exhibit 14: Ping An has been gathering a growing App and Internet Exhibit 15: Ping An is the 2nd largest life insurer in China, but the user base largest in Tier-1 cities Ping An’s registered Internet/App users (mn) Gross Written Premium of life insurance in 2016 (Rmb mn)

Registered App user Registered Internet user 140,000 Ping An’s market share in 430 these developed regions is 403 120,000 15%, vs 11% nationwide. 377 346 100,000 337 Jiangsu 298 312 288 80,000 265 Zhejiang 242 222 233 197 60,000 Guangdong 182 159 167 137 40,000 Beijing 107 73 20,000 29 45 20 0 China Life Ping An* CPIC 4Q14 1Q15 2Q15 3Q15 4Q15 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 *Ping An includes Ping An Life, Ping An Health and Ping An Annuity.

Source: Company data Source: CIRC, Goldman Sachs Global Investment Research

Comprehensive financial licenses

Ping An already holds licenses and operates in most segments of the financial services industry, including insurance, banking, mutual fund, trust, securities broker, and payment. Unlike an external innovator/disruptor, Ping An better understands the pain points of the traditional financial institutions. Solutions provided by Ping An have also readily fulfilled the compliance requirements prescribed by various regulatory agencies (e.g., CBRC, CIRC, and CSRC). For the exclusive use of [email protected]

28 February 2018 13 Goldman Sachs Ping An Insurance Group (2318.HK) How do we value the company and why?

We value Ping An using a sum-of-the-parts (SOTP) valuation, given it operates in a wide range of markets in different stages of development. This also allows us to capture the ‘enabling’ effect that the tech-initiatives have on Ping An’s traditional businesses, reflected in higher multiples vs. their peers, given stronger growth and higher returns.

We continue to apply a 10% conglomerate discount to reflect exposure to China’s asset quality cycle given its banking and lending-related activities. In addition, we have applied a volatility discount (24%/27% for Ping An H/A) based on historical share price performances.

Exhibit 16: Ping An SOTP summary Ping An: Sum-of-the-parts valuation Total 2018E equity Per share Per share Equity/EV Multiple value value value Valuation (Rmb mn) (X) (Rmb mn) (Rmb) (HK$) contribution Life insurance EV (re-based to 2.8%) 586,855 2.9 1,730,313 94.7 117.2 71% P&C insurance 89,419 2.2 200,284 11.0 13.6 8% Banking (58%) 142,842 1.22 174,276 9.5 11.8 7% Securities, trust, and others 132,006 2.4 319,937 17.5 21.7 13% Sum-of-the-parts valuation 132.65 164.23 Conglomerate discount 10% 10% Volatility discount 27% 24% Sum-of-the-parts valuation (post-conglomerate & volatility discount) 88.00 113.00

Source: Goldman Sachs Global Investment Research

How to value the tech initiatives?

One of the most frequently asked questions we receive from investors about Ping An’s valuation is how to assign value to its tech initiatives, given a relative lack of financial disclosure for most of them.

1. The standalone valuation , based on available financial disclosure and news reports, only captures part of the benefits we see in Ping An’s investment in tech initiatives.

For the exclusive use of [email protected] 2. The more important aspect of the tech initiatives, in our view, is their ‘enabling’ effect within the core businesses . This is reflected in the value created in its core businesses, which we capture by applying higher valuation multiples to Ping An’s core insurance and banking businesses (vs. peers).

o We value Ping An P&C, for example, at 2.2x FY18E P/B vs. 1.6x-2.0x for PICC and CPIC, reflecting higher sustainable ROE (17.5% FY18-20E vs. 15.0-17.0%). This partly reflects: 1) the strong growth in credit insurance (leveraging its tech-enabled risk underwriting); and 2) industry leading profitability in auto insurance (leveraging its image-based loss verification technology and fraud detection capabilities). 3. For early-stage investments, we believe investors should assign nominal value (based on book value) given the relative lack of financial disclosure.

Details on Ping An valuation

We value Ping An Life using ROEV-derived price-to-embedded value (EV) multiples.

28 February 2018 14 Goldman Sachs Ping An Insurance Group (2318.HK)

n We believe EV is the most appropriate valuation basis for Chinese life insurers because it takes into account long-term profitability. We see this as suitable because Chinese life insurers are still growing rapidly and may incur initial capital expenditure (i.e., negative impact on book value), despite improved long-term profitability.

n Our adjusted EV is based on a 2.8% long-term government bond yield, vs. 3.4% company assumption and c.4% spot yield. We believe this provides a buffer in valuation, unless long bond yields decline significantly below 3%.

Exhibit 17: Life ROEV and P/EV multiple of Ping An Life

Sustainable ROEV at ROEV assumed long- reduction due Sustainable Long term Theoretical Fair ROEV based valuation COE term return to lower yields ROEV growth rate P/EV Ping An Life 10.5% 23.5% 0.3% 23.2% 4.0% 2.9

Source: Goldman Sachs Global Investment Research

We value Ping An P&C using a three-staged DDM model.

Exhibit 18: 3-stage DDM valuation for Ping An P&C Stage 1 Stage 2 Stage 3 Implied Theoretic Theoretic Discount Div. No. of Div. No. of Div. al Fair al Fair ROEV based valuation rate CAGR Year RoE payout Growth Year RoE payout Growth P/E P/B Ping An P&C 10.7% 10.9% 3 17.5% 60% 7.0% 10 17.5% 80% 3.5% 12.8 2.24

Source: Goldman Sachs Global Investment Research

To value Ping An Bank, we use a P/PPOP-based valuation, focusing on the capability of intrinsic profit generation and the comparability with other banks across countries. Please refer to the note Ping An Bank - Consumer Lending 3.0 , January 18, 2018 for more details.

In addition to a conglomerate discount of 10%, we also apply another discount at the group level to account for market volatility. After 2011, Chinese insurers appear to have only traded at the theoretical fair multiple except in the most constructive macro environments. On the other hand, there has seemed to be a floor valuation (“Distressed For the exclusive use of [email protected] Valuation”), 1 standard deviation below historical average P/EV, where the market seems to ignore growth and finds bottom at prior lows. If we do not take a view on the macro trend, we believe the market will require a discount to the Theoretical Fair Value. Our current volatility discount, 24%/27% for Ping An H/A, implies a normalized macro environment and mid-cycle valuation.

Estimate changes

We fine-tune our FY17-19E NBV, reducing it by 3-6% to reflect weak January 2018 sales. We also revise our Rmb/HK$ exchange rate assumption to 1.24 from 1.18, and introduce our 2020E estimates. The 12m-SOTP based target price for Ping An H/A is raised to HK$113/Rmb88 from HK$107/Rmb88, implying 1.8X 2018E adjusted EV. Reiterate Buy (on Conviction List).

28 February 2018 15 Goldman Sachs Ping An Insurance Group (2318.HK)

Exhibit 19: Summary of estimate changes New Old Change % Yoy growth % Rmb mn 2017E 2018E 2019E 2020E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2020E NBV 65,701 82,463 103,128 126,122 67,509 87,185 109,837 -3% -5% -6% 29% 26% 25% 22% EV 804,304 1,000,996 1,236,968 1,516,976 823,019 1,028,795 1,274,175 -2% -3% -3% 26% 24% 24% 23% EPS (Rmb) 4.19 5.39 6.67 8.10 4.46 5.58 6.67 -6% -3% 0% 20% 28% 24% 21% BV 452,640 532,064 629,910 748,273 455,608 536,783 633,044 -1% -1% 0% 18% 18% 18% 19%

Source: Goldman Sachs Global Investment Research For the exclusive use of [email protected]

28 February 2018 16 Goldman Sachs Ping An Insurance Group (2318.HK) How does the company invest?

Ping An’s insurance business has been self-sustainable and has continued to upstream capital to the group since 2012. This has supported the group’s investment in Ping An Bank and tech-initiatives.

Strong capital generation from insurance

Since 2012, Ping An’s life and P&C insurance have been self-sustainable given strong profit generation. This has allowed the two subsidiaries to continue to upstream capital to the group company, totalling Rmb51bn between 2012 and 1H17.

Ping An Life’s capital position saw a significant improvement in 2016 due to the move to a risk-based capital regime, which reduced its capital requirement given its more protection-oriented product mix. This has allowed for a significant increase in capital upstream in 2016.

Exhibit 20: Ping An Life’s business is self-sustaining and has Exhibit 21: Ping An Group’s solvency has been adequate. continued to upstream capital to the Group since 2012. Ping An Group’s solvency ratio Ping An Life’s capital upstream to Ping An Group (Rmb mn)

Group Comprehensive Solvency Ratio - C-ROSS 17,289 Group Solvency Ratio - Solvency I Regulatory requirement

205% 205% 210% 211% 186% 174% 195%

6,828 5,987 5,987 5,987 6,223 100%

2012 2013 2014 2015 2016 1H17 2012 2013 2014 2015 2016 1H17

Source: Company data Source: Company data, Goldman Sachs Global Investment Research

For the exclusive use of [email protected] Dividend and R&D set to increase as bank capital consumption declines

Capital generation from the insurance operations has been mainly used to fund growth at Ping An Bank and the tech-initiatives in recent years.

n Capital raisings at Ping An Bank since 2013, totalling Rmb45bn; and

n Investment in tech-initiatives, with Rmb50bn invested over the last decade and c.1% of revenue annually going forward.

As Ping An Bank shifts towards less capital consuming retail business, we believe Ping An can now focus on investment in tech-initiatives, as well as shareholder returns, evident in the 150% dividend hike in 1H17.

28 February 2018 17 Goldman Sachs Ping An Insurance Group (2318.HK)

Exhibit 22: Capital raising since 2013 has improved Ping An Bank’s Exhibit 23: Ping An Group started to increase its dividend payout Capital Adequacy Ratio ratio in 2016 Ping An Bank’s Capital Adequacy Ratio % Ping An Group’s dividend history (Rmb, LHS) and payout ratio (RHS)

11.5 1.35 11.4 11.2 1.4 35% 10.9 10.9 9.9 1.2 30% 2.2 2.2 30% 2.8 2.2 1.9 1.3 1.0 25% 22% 0.85 18% 0.8 18% 18% 0.75 20% 17% Final DPS Tier II CAR 0.6 0.53 15% Interim DPS 9.3 Tier I CAR 8.6 8.6 8.6 9.0 9.1 0.37 0.55 0.4 0.33 10% Payout ratio 0.35 0.23 (RHS) 0.25 0.50 0.2 0.23 5% 0.15 0.18 0.20 0.10 0.13 - 0.08 0% 2012 2013 2014 2015 2016 2017E 2012 2013 2014 2015 2016 1H17 Note: 2017 Interim DPS is actual number.

Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research

Exhibit 24: Ping An’s investment in tech initiatives focuses on 4 core ecosystems and 5 technological capabilities For the exclusive use of [email protected] Source: Company data

28 February 2018 18 Goldman Sachs Ping An Insurance Group (2318.HK) What could go wrong?

For Ping An’s core insurance business, we believe the strong growth outlook is likely to remain intact in the foreseeable future, driven by continued income and wealth growth, and the need for healthcare and retirement provisions in addition to public schemes. However, if long-term asset yields decline significantly and trigger concerns over negative spreads (as we saw in 2015/16), we could see large negative share price reactions as a result.

n As we highlighted in our April 11, 2016 report, Can China’s Insurers afford their promising future? , we believe negative spread (where asset yield is below cost of liability) is unlikely to be a near-to-medium term issue for most listed insurers until at least 2025, even assuming interest rates of 2.8%. Ping An already has a higher insurance margin vs. peers, and has time to further improve its product mix towards protection products to reduce its dependence on investment returns.

Exhibit 25: We estimate Ping An’s EV and NBV to be the most resilient to changes in investment return among Chinese insurers EV/NBV sensitivity to a 50bps reduction in investment return assumption

China Life Ping An CPIC NCI Taiping PICC Life & Health 0%

-5% -6% -10% -8% -8% -8% -8% -9% -12% -14% -16% -20% -17%

-30%

-40%

For the exclusive use of [email protected] -50% -49% EV sensitivities to a 50bps reduction in bond yields NBV sensitivities to a 50bps reduction in bond yields -60%

Source: Company data, Goldman Sachs Global Investment Research

28 February 2018 19 Goldman Sachs Ping An Insurance Group (2318.HK)

Exhibit 26: Ping An price declines as a result of long-term government bond yield decline in 2015/2016 Ping An H share price vs China 10 year government bond yield (%)

120 Ping An H share price (HK$, LHS) China 10-year bond yield % (RHS) 6

5.5 100

5 80

4.5 60 4

40 3.5

20 3

0 2.5

Source: Datastream

Ping An’s share price could also be negatively affected by China asset quality concerns , given its exposures through banking and other lending-related business activities. In particular, any potential equity raising by Ping An Bank as a result of asset quality issues could lead to concerns around dilution of Ping An Group’s ROE.

Exhibit 27: Ping An Bank has raised c.Rmb45bn through three private placements since its consolidation into the Ping An Group in 2012 Ping An Bank’s capital raising history and Ping An H share price (HK$) since 2012

120.00 For the exclusive use of [email protected]

100.00 May 2015: Raised Rmb10bn through common stock private placement. Ping An Group subscribed 80.00 Rmb3.5bn (35%). Dec 2013: Raised Rmb14.8bn through common stock private placement 60.00 to Ping An Group (100%)

40.00

Mar 2016: Raised Rmb20bn through 20.00 preferred share private placement. Ping An Group subscribed Rmb11.6bn (58%). 0.00 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18

Source: Company data, Datastream

28 February 2018 20 Goldman Sachs Ping An Insurance Group (2318.HK)

For Ping An’s tech initiatives, we believe the main risk lies in potential regulatory changes , as the FinTech regulatory environment appears to have shifted from an initial relative free hand to promote growth, to a seemingly more balanced approach. While the changes should not suppress innovation, they could potentially add speed bumps or require some business models to adapt or change.

n Ping An now trades at a premium to its proxy SOTP value, derived based on peer market valuation multiples 2. We believe this partly reflects the higher valuation multiples assigned to its tech initiatives (vs. traditional financial businesses). If any of its tech-initiatives are materially affected by regulatory changes, this implied valuation premium could decrease.

Exhibit 28: Ping An H has traded mostly at a premium to SOTP-based proxy since 2016 Historical share price performance for Ping An (H) and Ping An (H) proxy

Ping An H vs. Ping An H market SOTP Ping An Bank A price performance (Base date: 7/27/2012) Ping An H price performance (base date 7/27/2012) Relative Ping An Proxy H performance (base date: 7/27/2012) Ping An/Ping An Proxy Price Ping An/ Ping An proxy 350 1.9 Implied discount to market SOTP: - Since consolidation of 1.8 Ping An Bank (Jul 12): 300 median: 12.9%; average: 5.0% 1.7 Current implied 1.6 premium to mkt SOTP: 58% 250 1.5 as of 02/26/2018 1.4

200 1.3

1.2

150 1.1 Premium to mkt SOTP 1.0 Discount to mkt SOTP 100 0.9

0.8

50 Average discount 0.7 (Jul 2012 to Dec 2015): 18% 0.6

For the exclusive use of [email protected] 0 0.5 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18

Source: Datastream, Company data, Goldman Sachs Global Investment Research

2 Our Ping An proxy is arrived at by assigning Ping An’s Life/P&C/Banking/Securities businesses valuations based on historical trading valuation multiples for China Life/PICC P&C/Ping An Bank/CITIC Securities. The latest multiples are 0.7X P/EV for life insurance, 1.2X P/B for P&C insurance, 0.9X P/B for Ping An Bank, and 1.1X P/B for Securities for Ping An H proxy, and 1.0X/1.2X/0.9X/1.1X for Ping An A proxy. We value Ping An’s other businesses at 1X P/B for both Ping An H/A proxy.

28 February 2018 21 Goldman Sachs Ping An Insurance Group (2318.HK)

Exhibit 29: Similarly, Ping An A has started to trade at a premium to its SOTP-based proxy since 1H17 Historical share price performance for Ping An (A) and Ping An (A) proxy

Ping An A vs. Ping An A market SOTP Ping An Bank A price performance (Base date: 7/27/2012) Ping An A price performance (Base date: 7/27/2012) Ping An Proxy A performance (base date: 7/27/2012) Ping An / Ping An Proxy Relative Ping An/ Price Ping An proxy 400 1.5 Implied discount to market SOTP: - Since consolidation of Ping An Bank (Jul 12): 1.4 350 median: 22.5%; average: 18.9% Current implied 1.3 premium to mkt 300 SOTP: 27% as of 02/26/2018 1.2

250 1.1 Premium to mkt SOTP 200 1.0 Discount to mkt SOTP 0.9 150

0.8 100 0.7 Average discount 50 (Jul 2012 to Dec 2015): 0.6 29%

0 0.5 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18

Source: Datastream, Company data, Goldman Sachs Global Investment Research For the exclusive use of [email protected]

28 February 2018 22 Goldman Sachs Ping An Insurance Group (2318.HK) Quantamentals

This section was contributed by Asia Quantitative Research analyst Tsumugi Akiba.

1) 12M Return Attribution helps investors understand the drivers of the past 12M return by disaggregating into Market, Sector and Factors (such as Value, Growth and Momentum). The regression is done using a time-series Multi-Factor approach based on daily returns over the last one year (to February 23, 2018). The chart shows the actual breakdown of the returns.

Exhibit 30: 12M return attribution breakdown of Ping An (H)

Return attribution breakdown analysis for Ping An Insurance (Group) Company of China, Ltd. Class H (2318.HK)

120

) % ( 100 n w o d k a e r B

80 n o i t u b i r t t

A 60

n r u t e R 40

20

0 For the exclusive use of [email protected] HSCEI Financials Market Country Sector Size FX Value Growth Returns Mom. Idiosyn. 12M Perf 6.2%+ 17.5% + -0.4%+ 4.9%+ -1.8%+ -2.5%+ 0.7%+ -1.6% + 13.2%+ 68.0%= 104.1%

IP Factors 9.8%

Source: Goldman Sachs Global Investment Research

We see a significant portion of Ping An (H)’s 12-month return is attributable to company specific factors (+68.0%), which we define by “idiosyncratic” return in our regression model. Idiosyncratic attribution is the portion that our multi-factor regression model was not able to explain. Ping An (H)’s performance is also largely driven by the local market (HSCEI). Coefficient to HSCEI is 0.87 with significant t-stats. This is intuitive as Ping An (H) is one of the largest constituents of the HSCEI. In terms of Investment Profiling (IP) factors, Ping An (H) had negative (and significant) coefficient to Momentum and Value factors. This means the stock benefits when the Momentum factor had negative returns

28 February 2018 23 Goldman Sachs Ping An Insurance Group (2318.HK)

(i.e., return reversal trend) and/or stock performance was dragged down a bit when Value factor outperforms. All other factors are not significant.

2) Attribution Comparison : These charts compare Ping An (H)’s return attribution with the MSCI AC Asia ex-Japan (MXASJ) stocks average and stocks average in Financials (under GICS Level 1) sector for return attribution of Market, Country, Sector, IP factor and Idiosyncratic factor.

We see Ping An (H) had much higher Country/IP/Idiosyncratic attribution compared to its peers.

Exhibit 31: 12M return attribution comparison for Ping An (H)

12M Return attribution Comparison for Ping An Insurance (Group) Company of China, Ltd. Class H (2318.HK) MXASJ Stock Avg Financials Sector Stock Avg 2318.HK MXASJ Stock Avg Financials Sector Stock Avg 2318.HK MXASJ Stock Avg Financials Sector Stock Avg 2318.HK

9.0 11.2 -3.0 Market Country Sector Attribution 0.8 Attribution 16.0 Attribution -0.3 (%) (%) (%)

6.2 17.5 -0.4

0.0 2.0 4.0 6.0 8.0 10.0 0.0 5.0 10.0 15.0 20.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0

MXASJ Stock Avg Financials Sector Stock Avg 2318.HK MXASJ Stock Avg Financials Sector Stock Avg 2318.HK

0.7 9.6 IP Idiosyn. Factors -0.4 Attribution 9.2 Attribution (%) (%) 9.8 68.0

-2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 0.0 20.0 40.0 60.0 80.0

Source: Goldman Sachs Global Investment Research

3) Investment Profiling (IP) scores : Looking at Ping An Insurance through the lens of our IP Factors, Growth has consistently scored above our regional coverage average percentile for the past three years, and has recently risen to top regional quintile (82nd percentile). Alongside, Multiples have also remained in the 52nd percentile. The company ranks in the 66th percentile vs. our regional coverage on our Integrated (a For the exclusive use of [email protected] proxy for Quality) Factor.

28 February 2018 24 Goldman Sachs Ping An Insurance Group (2318.HK)

Exhibit 32: Historical IP percentile score of Ping An (H)

100%

80%

s e r o c S

r 60% o t c a F

P I

l

a 40% c i r o t s i H 20%

0% 7 5 6 7 5 5 5 6 6 7 7 5 6 7 5 5 6 6 7 5 6 7 7 6 6 7 5 6 5 5 6 7 7 8 5 6 7 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ------l l l t t t r r r r r r v c v c v c y y y n n n n n n n p b b b g p g p g u u u c c c p p p a a a o e o e o e a a a a e e e a u u a u a e u e u e u J J J A O A O A O J J J J J J J F M F M F M N D N D N D A S A S A S M M M Multiple Growth Financial Returns Integrated

Note: High Multiple percentile scores imply rich valuation. Integrated is our proxy for Quality - a combination of Growth, Multiple and Financial Returns.

Source: Goldman Sachs Global Investment Research

Visit the Quantamentals page to read further on factors, positioning, correlations and more. For the exclusive use of [email protected]

28 February 2018 25 Goldman Sachs Ping An Insurance Group (2318.HK) ESG Overview

This section was contributed by Asia GS SUSTAIN analyst Gabriel Wilson-Otto.

Exhibit 33: GS SUSTAIN Environmental, Social & Governance (ESG) Dashboard

GS SUSTAIN Environmental, Social & Governance (ESG) Overview

ESG Commentary Governance - In our Governance framework, Ping An Insurance Group (Ping An) scores at the 21st percentile vs. MSCI ACWI constituents and the 36th percentile vs. Asia ex Japan constituents of the MSCI ACWI. Relative to global peers, Ping An’s governance scores are impacted by a lack of separation between the roles of chairman and CEO and lack of a majority of independent directors.

While not included in our Governance score, we note that Ping An has a 5 member supervisory committee that oversees the board of directors and management of the firm. The supervisory committee has 2 independent members, 1 shareholder representative and 2 employee representatives. The firm’s largest shareholder is Group Company Ltd, with c.10% of total issued shares of the company. The current chairman of the firm, Mr. Ma Mingzhe, is also the CEO of the company.

While not included in our Governance score, we note that Ping An Bank (c.58% owned by Ping An Insurance) raised capital via private placements to Ping An Insurance and other parties from 2013 to 2016. Through common stock private placements, Ping An Bank raised a total of RMB 25 billion (US$ c.4bn) at c.4% discount / c.7% premium to Ping An Bank’s share price in 2013 and 2015, respectively. Ping An Bank also raised c. RMB 20 billion (US$ c.3bn) via preferred share private placement in 2016.

Environmental and Social - Ping An ranked at the 47th percentile vs. MSCI ACWI sector peers and 53rd percentile vs. Asia ex Japan sector peers in our E&S framework. Ping An’s score is supported by the firm’s efforts to implement targets and policies around skills training and development, customer data privacy and integrity, and the avoidance of bribery and corruption. The overall score has been negatively impacted by a lower percentage of female employees relative to sector peers.

Ping An’s CSR report was independently audited and prepared in accordance with local guidelines and reference to GRI reporting standards.

Governance Score Environmental and Social Score Percentile Rank vs. MSCI ACWI and Regional Peers Percentile Rank vs. MSCI ACWI and Regional Peers

Score vs. Score vs. MSCI MSCI ACWI ACWI Score vs. Score vs. Region Region

0% 25% 50% 75% 100% 0% 25% 50% 75% 100%

Calculation methodology and notes Our proprietary ESG scores are based on a quantitative ESG framework that evaluates companies on: (1) Governance; and (2) Environmental & Social metrics (stakeholder management). We use (6*DQDO\VLVDVDWRROWRKHOSLGHQWLI\DVVHVVDQGPLWLJDWHULVNDQGDVDQHZGDWDVHWWRVXSSOHPHQWRXUHYDOXDWLRQRIDFRPSDQ\¶VHIILFLHQF\DVVHWTXDOLW\RSHUDWLRQDOSHUIRUPDQFHDQG management.

For the exclusive use of [email protected] Our ESG scores aim to flag companies and areas that in our view warrant further investigation, but do not necessarily indicate elevated risk for investors.

We source raw data from a collection of 3rd party data sources. Governance scores shown are the ’Organizational Checks and Balances’ Pillar of our ESG analysis and are ranked vs. global companies in the MSCI ACWI (not sector relative). Environmental & Social scores shown are the ’Stakeholder Management’ Pillar of our ESG analysis and are ranked vs. sector peers in the MSCI ACWI. Scores vs. region are measured relative to the following regions: (a) Asia ex-Japan; (b) Japan; or (c) Australia & New Zealand.

Source: Goldman Sachs Global Investment Research

For more detail on our calculation methodology and metrics selected refer to ‘ The PM’s Guide to the ESG Revolution ‘, April 18, 2017 and ‘ Governance and Risk Management - expanding coverage, narrowing focus ‘, March 1, 2015.

For more on GS SUSTAIN and the ESG series, visit the page .

28 February 2018 26 Goldman Sachs Ping An Insurance Group (2318.HK) Appendix

Exhibit 34: Ping An: Summary Financials

2016 2017E 2018E 2019E 2020E (Rmb mn) 2016 2017E 2018E 2019E 2020E Valuations Profit model P/B (X) 3.67 2.97 2.41 2.04 1.72 Gross written premiums and policy fees 469,555 600,868 739,100 906,106 1,105,863 P/EV (X) 2.21 1.67 1.28 1.04 0.85 Net earned premiums 441,620 564,274 701,764 867,130 1,065,158 NBM (X) 15.1 8.2 3.4 0.5 (1.8) income 6,353 8,158 9,022 9,825 10,709 P/E (X) 21.29 17.95 13.35 10.53 8.67 Total premium income 447,973 572,432 710,786 876,955 1,075,867 Dividend yield (%) 1.0% 1.6% 2.2% 2.7% 3.3% Commission expense 78,754 112,262 137,845 170,530 204,619 G&A expenses 175,090 177,581 205,188 229,567 258,015 Per share data (HK$) Claims and benefits 324,814 421,888 515,003 628,465 769,410 BVPS 23.71 29.26 36.04 42.66 50.68 Increase in policy reserve EVPS (Reporting) 39.43 52.00 67.80 83.78 102.74 Underwriting profit (130,685) (139,300) (147,249) (151,607) (156,177) EVPS (Re-based) 37.69 49.52 64.42 79.47 97.34 Investment income 115,053 144,307 157,549 173,209 188,280 NBVPS 3.14 4.25 5.59 6.98 8.54 Net interest income of banking operations 78,138 77,969 87,429 100,867 116,639 EPS 4.09 4.85 6.51 8.26 10.03 Net fees and commission income 35,467 39,187 44,299 51,366 59,551 DPS 0.88 1.42 1.89 2.36 2.84 Other income and expenses (3,562) (4,627) (972) 1,541 6,651 Pretax profit 94,411 117,536 141,055 175,376 214,944 Per share data (Rmb) Tax 22,043 30,176 29,157 36,275 44,574 EVPS (Reporting) 34.88 44.00 54.76 67.67 82.99 Net profit 62,394 76,675 98,476 122,012 148,104 EVPS (Re-based) 33.34 41.90 52.03 64.19 78.62 Dividends 13,710 22,439 28,566 34,905 41,864 NBVPS 2.78 3.59 4.51 5.64 6.90 EPS 3.50 4.19 5.39 6.67 8.10 Balance sheet Investment assets 3,189,746 3,592,982 3,899,005 4,244,459 4,634,425 EVPS growth 15.3% 26.1% 24.5% 23.6% 22.6% Loans to customers 1,458,291 1,703,719 1,914,400 2,188,061 2,493,734 NBVPS growth 32.2% 29.3% 25.5% 25.1% 22.3% Total assets 5,576,903 6,264,865 6,790,977 7,421,446 8,287,848 EPS growth 17.3% 20.0% 28.4% 23.9% 21.4% Insurance and investment contract liabilities 1,670,403 1,970,049 2,282,954 2,654,340 3,097,004 Customer deposits 1,894,377 2,038,399 2,191,983 2,441,714 2,680,173 Factors driving earnings growth Shareholders’ equity 383,449 452,640 532,064 629,910 748,273 Gross written premium growth 21.6% 28.0% 23.0% 22.6% 22.0% Net earned premium growth 26.2% 27.8% 24.4% 23.6% 22.8% Life insurance Total premium income 24.8% 27.8% 24.2% 23.4% 22.7% Gross written premiums 291,264 385,406 505,305 651,988 829,487 Commission expenses - net 55.5% 42.5% 22.8% 23.7% 20.0% Net earned premiums 288,064 381,961 501,768 647,424 823,681 G&A expenses 8.4% 1.4% 15.5% 11.9% 12.4% Total premium income (incl. reinsurance) 288,339 382,807 502,758 648,414 824,671 Claims and benefits 12.2% 29.9% 22.1% 22.0% 22.4% Commission expenses - net 56,249 81,012 103,432 133,186 163,576 Underwriting losses -8.4% 6.6% 5.7% 3.0% 3.0% G&A expenses 59,523 67,050 87,402 103,557 123,177 Investment income -14.7% 25.4% 9.2% 9.9% 8.7% Claims and benefits 241,283 316,761 397,507 499,645 627,167 Net interest income of banking operations 15.9% -0.2% 12.1% 15.4% 15.6% Underwriting profit (68,716) (82,016) (85,583) (87,974) (89,249) Other income and expenses 11.7% 29.9% -79.0% -258.5% 331.7% Pretax profit 1.1% 24.5% 20.0% 24.3% 22.6% FYP (including deposits) 141,967 181,207 219,271 259,603 308,628 Net profit 15.1% 22.9% 28.4% 23.9% 21.4% APE (including deposits) 109,634 151,539 188,697 226,351 271,747 New business value 50,805 65,701 82,463 103,128 126,122 Key operating ratios for group Embedded value (Reporting) 637,703 804,304 1,000,996 1,236,968 1,516,976 Operating expenses / total premiums 56.67% 50.63% 48.26% 45.62% 43.00% Total benefit payouts / total premiums 72.51% 73.70% 72.46% 71.66% 71.52% P&C insurance Underwriting profit / total premiums -29.17% -24.33% -20.72% -17.29% -14.52% Gross written premiums 178,291 215,304 233,795 254,118 276,376 Investment yield 3.87% 4.26% 4.21% 4.25% 4.24% Net earned premiums 153,556 182,208 199,996 219,706 241,477 Effective tax rate 23.3% 25.7% 20.7% 20.7% 20.7% Total premium income (incl. reinsurance) 159,634 189,510 208,028 228,541 251,196 ROA 1.21% 1.29% 1.51% 1.72% 1.89% Commission expenses - net 25,486 33,651 37,053 40,249 44,238 ROE 17.4% 18.3% 20.0% 21.0% 21.5% G&A expenses 45,451 46,429 49,331 54,649 60,062 Solvency ratio 210% 216% 212% 209% 209% Claims and benefits 83,531 105,077 117,496 128,820 142,243 Underwriting profit 5,166 4,354 4,148 4,823 4,653 Key operating ratios for life insurance Gross writtten premium growth 31.2% 32.3% 31.1% 29.0% 27.2% Banking Total premium income growth 32.8% 32.8% 31.3% 29.0% 27.2% Gross loans 1,475,801 1,703,719 1,914,400 2,188,061 2,493,734 FYP growth (including deposits) 34.2% 27.6% 21.0% 18.4% 18.9% Net interest income 76,248 77,313 87,429 100,867 116,639 APE growth (including deposits) 36.0% 38.2% 24.5% 20.0% 20.1% Non-interest income 29,585 33,123 37,957 44,129 51,329 NB margin (on FYP) (Reporting) 35.8% 36.3% 37.6% 39.7% 40.9% Total operating revenue 105,833 110,436 125,387 144,996 167,968 NB margin (on APE) (Reporting) 46.3% 43.4% 43.7% 45.6% 46.4% Operating expenses 32,266 31,582 39,187 45,020 51,069 New business value growth 32.2% 29.3% 25.5% 25.1% 22.3% Preprovision operating profit 73,567 78,854 86,200 99,976 116,899 Embedded value growth 15.3% 26.1% 24.5% 23.6% 22.6% Provision charges 45,435 49,012 50,983 55,921 59,373 Pretax profit 29,356 30,052 35,217 44,055 57,526 Key operating ratios for P&C insurance Gross written premium growth 8.7% 20.8% 8.6% 8.7% 8.8% Breakdown of premium and profit For the exclusive use of [email protected] Total premium income growth 12.5% 18.7% 9.8% 9.9% 9.9% Gross written premiums Underwriting profit growth 1.3% -15.7% -4.7% 16.3% -3.5% Life insurance 62% 64% 68% 72% 75% P&C insurance 38% 36% 32% 28% 25% Expense ratio 41.5% 39.4% 38.7% 38.6% 38.6% Total premium income Loss ratio 54.4% 57.7% 58.7% 58.6% 58.9% Life insurance 64% 67% 71% 74% 77% Combined ratio 95.9% 97.1% 97.4% 97.2% 97.5% P&C insurance 36% 33% 29% 26% 23%

Key operating ratios for banking Life insurance 33% 47% 46% 45% 44% Loan growth 24.1% 15.4% 12.4% 14.3% 14.0% P&C insurance 16% 15% 14% 12% 11% Preprovision profit growth 25.9% 7.2% 9.3% 16.0% 16.9% Banking 31% 26% 25% 25% 27% Pretax profit growth 4.2% 2.4% 17.2% 25.1% 30.6% Others 20% 13% 15% 17% 18% NII / average assets 2.79% 2.47% 2.51% 2.60% 2.67% Net profit Non-int income / total operating revenue 28.0% 30.0% 30.3% 30.4% 30.6% Life insurance 36% 52% 55% 54% 54% Cost income ratio 30.5% 28.6% 31.3% 31.0% 30.4% P&C insurance 20% 18% 15% 14% 12% Credit cost 3.41% 3.08% 2.82% 2.73% 2.54% Banking 21% 17% 16% 16% 17% Pretax ROA 1.07% 0.96% 1.01% 1.14% 1.32% Others 23% 13% 14% 16% 17% Shareholders’ equity ROE by division Life insurance 30% 30% 30% 31% 31% Group 17.4% 18.3% 20.0% 21.0% 21.5% P&C insurance 17% 17% 17% 17% 16% Life insurance 21.9% 32.2% 36.4% 37.3% 37.2% Banking 31% 29% 27% 26% 25% P&C insurance 20.8% 19.3% 18.2% 17.3% 15.9% Others 22% 25% 26% 26% 27% Banking 12.0% 10.6% 11.2% 12.6% 14.5% Others 16.3% 9.9% 11.3% 12.8% 13.4%

Source: Company data, Goldman Sachs Global Investment Research

28 February 2018 27 Goldman Sachs Ping An Insurance Group (2318.HK)

Exhibit 35: Ping An H and Ping An A on our ex-Japan Conviction List with an upside potential of 30% and 24%, respectively Valuation comparison table

Potential P/EV(X) NBM (X) P/B (X) P/E (X) ROE Div. yield Share upside/ As of Feb-26-2018 Ticker Rating price 12m TPdownside 2017E 2018E 2019E 2020E 2017E 2018E 2019E 2020E 2017E 2018E 2019E 2020E 2017E 2018E 2019E 2020E 2017E 2018E 2019E 2020E 2017E 2018E 2019E 2020E H-share insurers (HK$) China Life (H) 2628.HK Neutral 23.80 31.70 33% 0.81 0.69 0.62 0.55 (2.53) (4.33) (5.38) (6.25) 1.79 1.56 1.42 1.28 19.1 14.5 11.5 9.8 10% 11% 13% 14% 1.9% 2.4% 3.1% 3.6% Ping An (H) 2318.HK Buy* 87.00 113.00 30% 1.67 1.28 1.04 0.85 8.24 3.44 0.46 (1.84) 2.97 2.41 2.04 1.72 17.9 13.4 10.5 8.7 18% 20% 21% 21% 1.6% 2.2% 2.7% 3.3% CPIC (H) 2601.HK Neutral 39.75 50.90 28% 1.05 0.84 0.72 0.61 0.56 (1.66) (2.96) (4.03) 2.13 1.86 1.69 1.52 18.4 13.6 11.0 9.3 12% 15% 16% 17% 2.9% 3.9% 4.8% 5.7% NCI (H) 1336.HK Buy 49.85 71.90 44% 0.86 0.71 0.61 0.52 (1.70) (3.57) (4.63) (5.50) 1.95 1.64 1.43 1.24 18.3 13.6 10.6 8.4 11% 13% 14% 16% 1.6% 2.2% 2.8% 3.6% Taiping 0966.HK Neutral 31.30 34.90 12% 0.93 0.79 0.67 0.57 (0.90) (2.29) (3.37) (4.33) 1.86 1.63 1.42 1.23 19.2 15.4 12.7 10.8 11% 12% 12% 13% 0.4% 0.5% 0.6% 0.8% PICC Group 1339.HK Sell 4.35 4.75 9% 0.96 0.79 0.69 0.61 (3.00) (14.13) (19.63) (23.99) 1.10 0.93 0.83 0.74 8.8 7.7 7.0 6.6 13% 13% 12% 12% 1.1% 1.3% 1.4% 1.5% PICC 2328.HK Buy 15.86 21.50 36% N/A N/A N/A N/A N/A N/A N/A N/A 1.44 1.21 1.07 0.95 8.9 8.0 7.2 6.6 18% 16% 16% 15% 2.8% 3.1% 3.5% 3.8% Average (H) 27% 1.05 0.85 0.72 0.62 0.11 (3.76) (5.92) (7.66) 1.89 1.61 1.41 1.24 15.8 12.3 10.1 8.6 13% 14% 15% 15% 1.8% 2.2% 2.7% 3.2% A-share insurers (Rmb) China Life (A) 601628.SS Sell 27.75 24.60 -11% 1.12 1.00 0.89 0.79 1.67 0.02 (1.56) (2.91) 2.47 2.26 2.05 1.85 25.7 20.4 16.6 14.1 10% 11% 13% 14% 1.4% 1.7% 2.1% 2.5% Ping An (A) 601318.SS Buy* 70.80 88.00 24% 1.61 1.29 1.05 0.85 7.46 3.56 0.56 (1.77) 2.86 2.43 2.05 1.73 16.9 13.1 10.6 8.7 18% 20% 21% 21% 1.7% 2.2% 2.7% 3.2% CPIC (A) 601601.SS Neutral 42.51 40.80 -4% 1.33 1.12 0.95 0.81 3.66 1.26 (0.55) (2.00) 2.70 2.46 2.23 2.02 22.7 17.6 14.6 12.3 12% 15% 16% 17% 2.3% 3.0% 3.6% 4.3% NCI (A) 601336.SS Neutral 55.88 60.70 9% 1.14 0.98 0.84 0.73 1.69 (0.24) (1.87) (3.14) 2.59 2.28 1.98 1.72 24.2 18.9 14.8 11.7 11% 13% 14% 16% 1.2% 1.6% 2.0% 2.6% Average (A) 4% 1.30 1.10 0.93 0.79 3.6 1.1 (0.9) (2.5) 2.65 2.36 2.08 1.83 22.4 17.5 14.1 11.7 13% 15% 16% 17% 1.7% 2.1% 2.6% 3.2% AIA Group 1299.HK Buy* 63.20 76.00 20% 1.99 1.77 1.56 1.38 13.72 10.15 6.98 4.40 2.43 2.24 2.05 1.88 16.9 18.8 16.7 14.8 15% 12% 13% 13% 1.6% 1.9% 2.3% 2.7%

* denotes stock is on our regional Conviction List.

Source: Datastream, Company data, Goldman Sachs Global Investment Research

Exhibit 36: Ping An H is trading at 1.2X P/EV, vs historical mean 1.3X Exhibit 37: Ping An A is trading at 1.2X P/EV, vs historical mean 1.6X Ping An H 12-month rolling forward P/EV (X) Ping An A 12-month rolling forward P/EV (X)

7.0 9.0 Ping An (H) -1SD Mean +1SD Ping An (A) -1SD Mean +1SD 8.0 6.0 7.0 5.0 6.0

4.0 5.0

3.0 4.0

3.0 2.0 2.0 1.0 1.0

0.0 0.0 5 8 9 3 4 7 6 7 0 1 2 5 6 5 9 0 4 5 8 6 7 8 1 2 3 6 7 7 8 9 1 2 4 7 0 3 5 6 9 0 3 5 6 7 8 1 2 4 7 0 0 0 1 1 1 0 0 1 1 1 1 1 0 0 0 1 1 1 1 1 0 0 1 1 1 1 1 1 1 1 0 0 0 1 1 1 1 0 1 1 1 1 0 0 1 1 1 1 ------l l l l l l l l l l l l l r r r r r r r r r r r n n n n n n n n n n n n n n p p p p p p p p p p p u u u u u u u u u u u u u a a a a a a a a a a a a a a a a a a a a a a a a a e e e e e e e e e e e J J J J J J J J J J J J J J J J J J J J J J J J J J J M M M M M M M M M M M S S S S S S S S S S S

Source: Datastream, Goldman Sachs Global Investment Research Source: Datastream, Goldman Sachs Global Investment Research

Share prices on page one of this report are as of market close February 27, 2018 - elsewhere they are as of market close February 26, 2018 unless stated otherwise.

Ping An Bank (000001.SZ, closing price as of February 27, 2018 - Rmb12.28)

Views in this report are those of the authoring analysts: For the exclusive use of [email protected] Mancy Sun

+852-2978-6072, [email protected], Goldman Sachs (Asia) L.L.C.

Thomas Wang

+852-2978-1697, [email protected], Goldman Sachs (Asia) L.L.C.

Stanley Tian

+852-2978-1945, [email protected], Goldman Sachs (Asia) L.L.C.

Dan Cao

+65-6654-5566, [email protected], Goldman Sachs (Singapore) Pte

28 February 2018 28 Goldman Sachs Ping An Insurance Group (2318.HK) MSCI disclosure

All MSCI data used in this report is the exclusive property of MSCI, Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced or re-disseminated in any form and may not be used to create any financial instruments or products or any indices. This information is provided on an “as is” basis, and the user of this information assumes the entire risk of any use made of this information. Neither MSCI, any of its affiliates nor any third party involved in, or related to, computing or compiling the data makes any express or implied warranties or representations with respect to this information (or the results to be obtained by the use thereof), and MSCI, its affiliates and any such third party hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. MSCI and the MSCI indexes are service marks of MSCI and its affiliates. The Global Industry Classification Standard (GICS) were developed by and is the exclusive property of MSCI and Standard & Poor’s. GICS is a service mark of MSCI and S&P and has been licensed for use by The Goldman Sachs Group, Inc. For the exclusive use of [email protected]

28 February 2018 29 Goldman Sachs Ping An Insurance Group (2318.HK) Disclosure Appendix

Reg AC

We, Mancy Sun, Thomas Wang, Stanley Tian and Dan Cao, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs’ Global Investment Research division. GS Factor Profile The Goldman Sachs Factor Profile provides investment context for a stock by comparing key attributes to the market (i.e. our coverage universe) and its sector peers. The four key attributes depicted are: Growth, Financial Returns, Multiple (e.g. valuation) and Integrated (a composite of Growth, Financial Returns and Multiple). Growth, Financial Returns and Multiple are calculated by using normalized ranks for specific metrics for each stock. The normalized ranks for the metrics are then averaged and converted into percentiles for the relevant attribute. The precise calculation of each metric may vary depending on the fiscal year, industry and region, but the standard approach is as follows: Growth is based on a stock’s forward-looking sales growth, EBITDA growth and EPS growth (for financial stocks, only EPS and sales growth), with a higher percentile indicating a higher growth company. Financial Returns is based on a stock’s forward-looking ROE, ROCE and CROCI (for financial stocks, only ROE), with a higher percentile indicating a company with higher financial returns. Multiple is based on a stock’s forward-looking P/E, P/B, price/dividend (P/D), EV/EBITDA, EV/FCF and EV/Debt Adjusted Cash Flow (DACF) (for financial stocks, only P/E, P/B and P/D), with a higher percentile indicating a stock trading at a higher multiple. The Integrated percentile is calculated as the average of the Growth percentile, Financial Returns percentile and (100% - Multiple percentile). Financial Returns and Multiple use the Goldman Sachs analyst forecasts at the fiscal year-end at least three quarters in the future. Growth uses inputs for the fiscal year at least seven quarters in the future compared with the year at least three quarters in the future (on a per-share basis for all metrics). For a more detailed description of how we calculate the GS Factor Profile, please contact your GS representative. M&A Rank Across our global coverage, we examine stocks using an M&A framework, considering both qualitative factors and quantitative factors (which may vary across sectors and regions) to incorporate the potential that certain companies could be acquired. We then assign a M&A rank as a means of scoring companies under our rated coverage from 1 to 3, with 1 representing high (30%-50%) probability of the company becoming an acquisition target, 2 representing medium (15%-30%) probability and 3 representing low (0%-15%) probability. For companies ranked 1 or 2, in line with our standard departmental guidelines we incorporate an M&A component into our target price. M&A rank of 3 is considered immaterial and therefore does not factor into our price target, and may or may not be discussed in research. Quantum Quantum is Goldman Sachs’ proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets. GS SUSTAIN GS SUSTAIN is a global investment strategy focused on the generation of long-term alpha through identifying high quality industry leaders. The GS SUSTAIN 50 list includes leaders we believe to be well positioned to deliver long-term outperformance through superior returns on capital, sustainable competitive advantage and effective management of ESG risks vs. global industry peers. Candidates are selected largely on a combination of quantifiable analysis of these three aspects of corporate performance. Disclosures Coverage group(s) of stocks by primary analyst(s)

For the exclusive use of [email protected] Mancy Sun: A-share Insurance, Greater China Insurance, Hong Kong Insurance. Thomas Wang: India Insurance, Taiwan Banks, Taiwan Insurance. A-share Insurance: China Life Insurance Co. (A), China Pacific Insurance (A), (A), Ping An Insurance Group (A). Greater China Insurance: China Life Insurance Co. (H), China Pacific Insurance (H), China Taiping Insurance Holdings, New China Life Insurance (H), PICC Group, PICC Property and Casualty Co., Ping An Insurance Group (H). Hong Kong Insurance: AIA Group. India Insurance: Bajaj Finserv Ltd., ICICI Prudential Life Insurance Co.. Taiwan Banks: Cathay Financial Holding, Chailease Holdings, CTBC Financial Holdings, E.Sun Financial Holding, First Financial Holdings, Fubon Financial Holdings, Mega Financial Holdings, Shin Kong Financial Holdings, Taishin Financial Holdings, Yuanta FHC. Taiwan Insurance: China Life Insurance Co.. Company-specific regulatory disclosures The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, “Goldman Sachs”) and companies covered by the Global Investment Research Division of Goldman Sachs and referred to in this research. Goldman Sachs beneficially owned 1% or more of common equity (excluding positions managed by affiliates and business units not required to be aggregated under US securities law) as of the month end preceding this report: Ping An Insurance Group (A) (Rmb69.81) and Ping An Insurance Group (H) (HK$85.35) Goldman Sachs has received compensation for investment banking services in the past 12 months: Ping An Insurance Group (A) (Rmb69.81) and Ping An Insurance Group (H) (HK$85.35) Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: Ping An Insurance Group (A) (Rmb69.81) and Ping An Insurance Group (H) (HK$85.35)

28 February 2018 30 Goldman Sachs Ping An Insurance Group (2318.HK)

Goldman Sachs had an investment banking services client relationship during the past 12 months with: Ping An Insurance Group (A) (Rmb69.81) and Ping An Insurance Group (H) (HK$85.35) Goldman Sachs had a non-securities services client relationship during the past 12 months with: Ping An Insurance Group (A) (Rmb69.81) and Ping An Insurance Group (H) (HK$85.35) Goldman Sachs makes a market in the securities or derivatives thereof: Ping An Insurance Group (A) (Rmb69.81) and Ping An Insurance Group (H) (HK$85.35) Distribution of ratings/investment banking relationships Goldman Sachs Investment Research global Equity coverage universe

Rating Distribution Investment Banking Relationships Buy Hold Sell Buy Hold Sell Global 33% 54% 13% 63% 57% 52%

As of January 1, 2018, Goldman Sachs Global Investment Research had investment ratings on 2,867 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by the FINRA Rules. See ‘Ratings, Coverage groups and views and related definitions’ below. The Investment Banking Relationships chart reflects the percentage of subject companies within each rating category for whom Goldman Sachs has provided investment banking services within the previous twelve months. Price target and rating history chart(s)

Regulatory disclosures Disclosures required by United States laws and regulations See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/co-managed

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28 February 2018 31 Goldman Sachs Ping An Insurance Group (2318.HK)

applicable, the Brazil-registered analyst primarily responsible for the content of this research report, as defined in Article 16 of CVM Instruction 483, is the first author named at the beginning of this report, unless indicated otherwise at the end of the text. Canada: Goldman Sachs Canada Inc. is an affiliate of The Goldman Sachs Group Inc. and therefore is included in the company specific disclosures relating to Goldman Sachs (as defined above). Goldman Sachs Canada Inc. has approved of, and agreed to take responsibility for, this research report in Canada if and to the extent that Goldman Sachs Canada Inc. disseminates this research report to its clients. Hong Kong: Further information on the securities of covered companies referred to in this research may be obtained on request from Goldman Sachs (Asia) L.L.C. India: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (India) Securities Private Limited, Research Analyst - SEBI Registration Number INH000001493, 951-A, Rational House, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India, Corporate Identity Number U74140MH2006FTC160634, Phone +91 22 6616 9000, Fax +91 22 6616 9001. Goldman Sachs may beneficially own 1% or more of the securities (as such term is defined in clause 2 (h) the Indian Securities Contracts (Regulation) Act, 1956) of the subject company or companies referred to in this research report. Japan: See below. Korea: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (Asia) L.L.C., Seoul Branch. New Zealand: Goldman Sachs New Zealand Limited and its affiliates are neither “registered banks” nor “deposit takers” (as defined in the Reserve Bank of New Zealand Act 1989) in New Zealand. 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28 February 2018 32 Goldman Sachs Ping An Insurance Group (2318.HK)

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28 February 2018 33