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Good evening, ladies and gentlemen. Thank you for joining the conference call today with regard to Ping An's 2018 First Quarter Results Announcement and Presentation. My name is James Garner. I'm the Group Chief Strategist and Head of IR, and I'm going to host the call today. With me is Mr. Jason Yao, CFO and Chief Actuary; and Mr. Richard Sheng, the Board Secretary and Brand Director.
This conference call will be conducted in English and will last for around 30 minutes. [Operator Instructions] Please also state your name and the name of your company before asking your question.
Just before we get this call, I want to make a further statement. Today, during the board meeting, some people spread malicious rumors about changes of the Party Secretary and the Chairman of Ping An Group in the social media. These rumors are baseless, malicious and complete nonsense. The whole board condemns such activities. This rumor has damaged the stability of the capital market and our brand. We've already reported this case to the security authorities, and we will try and punish the persons that were responsible for spreading this baseless rumor.
Without further ado, we're ready to take the first question, operator.
[Operator Instructions] Now the first question comes from JPMorgan, Kim.
Yes. This is M.W. Kim from JPMorgan. I have one question about your new business growth outlook. So first quarter, the number was relatively weak compared to last couple of quarters in terms of a growth rate. So how we should think about your overall growth outlook for the last 9 months? And also, it seems that compared to December, your total sales -- the sales headcount seems a bit declined, but can you please give more update how you should become more productive in terms of sales agent productivity and the headcount outlook?
Okay. Thanks, Kim, yes. See, I think our first quarter FYP growth was around negative 16%, but our new business value growth was negative, minus 7.5%. Yes, it is a little bit weak compared to our previous years, and we feel the pressure. But I think from this one, we still see some light on it, all right? The positive ones, we still take it from this. The first one, the margin has been relatively improved. Margin has been improved to the -- 3 percentage points to over 30%. So overall, the product mix itself in the first quarter is better than last year. Then I think the outlook trend for the next 9 months is we should feel relatively confident that quarter-by-quarter, the situation should improve, and we should be able to catch up the GAAP, the negative GAAP we had in the first quarter. So the full -- for the whole year, we still are quite confident to achieve positive growth, and we will strive to even achieve a high growth, positive growth for the whole year. So I think every quarter -- over the quarters, I think the situation will be getting better and better. Then in terms of number of agents, yes, the number of agent, if you compare to the same period last year, still increased over 13%. Of course -- but of course, compared to the end of last year, yes, it is a minus drop, I think, because due to the premium growth pressure in the first quarter, a lot of branches, they are busy trying to produce premiums then a little bit less effort on growing the number of agents. But I think I've seen -- start from the second and third quarter, I think the effort will still come back to grow the number of agent. But of course, the growth will not be as high as last year when it's over 25%. So we are thinking around a low 10% growth, low teens is the long-term sustainable growth rate. At the same time, we'll continue to improve our agent productivity and improve, I must say, income for those agents. So we still -- our strategy has been fairly stable on agency side, still a solid growth in number of agent, at the same time, try to improve the productivity and maintain a relatively stable margin of the product mix. And even this year, we see there is some room to -- even to improve the margin, yes, improve the margin as well. Jim, do you want to add something?
That's very clear.
Yes, just for a second.
I just want to add a couple of points to what Jason was saying. Firstly, just to make it clear, from the 1st of June last year, we adopted document 134, so we were very early adopters of it. Many other peers didn't adopt it until the deadline. The second point, regarding the agent growth, we are -- we're very cognizant of increasing agents but also maintaining a very high agent activity ratio. And actually, one of the highlights in the first quarter was our agent activity ratio was over 66%.
The next question comes from Scott, Macquarie Securities.
Yes. It's Scott Russell with Macquarie. Can I ask 3 hopefully quick questions, please? Mostly relating to earnings and one-offs. The P&L has obviously got a lot of volatility in the first quarter. Just on the IFRS 9 changes in insurances, is that $4.8 billion impact, is that just an implementation impact or is that a function of volatility? I'm trying to understand whether that -- if you have exactly the same quarter in the second quarter, third quarter, whether that's recurrent. Second question is related to that OPAT in the life company, obviously a much purer way to look at your profit in the life company, up 12.8% year-on-year. That looks a little lighter than what we've expected in the last 12 months, which is over 30%. Can you comment on perhaps any unusual movement in that relating to the RM release or perhaps weaker experience? And then the final question, just about fintech. Obviously, a big contributor to the profit, CNY 1.8 billion. Are there any restructuring gains or any unusual nonrecurring items in that 1Q? Or should we just multiply that by 4 if we're forecasting 2018 profit?
All right. Thank you, Scott. That's, yes, 3 fairly straightforward questions. The first one, regarding the P&L impact from IFRS 9, this $4.8 billion, $4.9 billion impact on the Life business. It is a -- it is not a incrementation effect. It's not going to recur, yes. It is not a one time. It's just a consequence of the new accounting standard. When the market is volatile, it will create some volatility. Then this $4.8 billion, basically there are 2 sources of this. The first one is, for example, under the old accounting treatment, so if we bought a stock 2 or 3 years ago and the stock price increased quite significantly in 2017, right? For example, one stock for example is Country Garden, then we accumulate a lot of unrealized gains. Then in the first quarter, if we sold that stock a little bit or, to some extent, a portion of the stock, then under the old accounting treatment, you will have a profit, which will also go into your P&L, right, because that's your capital gain. Originally, it's in your balance sheet. Now if you sold this -- originally, that stock is treated as AFS, but if you sold a portion of that, if you have a gain or loss, that gain or loss will go to the P&L. But under the new requirement, if you sold that, you won't be able to book a profit unless the price you sell is higher than the price as of December 31, 2017. And you only recorded the difference between that -- those 2 numbers, not your original cost, okay? So that's the big difference. I'm not sure whether you get it. Is that all clear?
It's complex, but I follow.
It's complex, yes. This is one thing because under the new accounting treatment, as of 2017, December 31, you -- originally, you have a lot of capital gains, right? But they are recorded as a comprehensive -- in comprehensive income. When you implement that -- those comprehensive income, they will go to your retained earning. That portion will go to your retained earning, even though your net assets stay the same, and there's no impact because those stock are already mark-to-market, right? But then when you -- how they go to your P&L, that stock's cost under the new accounting statement has become the market value as of 2017 -- end of 2017, not your original cost, okay? This is one thing. And the second thing is, originally, you have a lot of stocks under the old accounting rules, IFRS. When they have market movement, unrealized gain or loss, those volatility will go to your balance sheet. But under the new accounting statement, most of the stocks will be classified as fair value through P&L. So if you have volatility in the stock market in the first quarter then, those unrealized gains in particular will hit our earnings. So those are the 2 major source of uncertainty. But of course, if the stock market increased significantly, then we can also have a very positive swing on the P&L, yes. So that's why under the new accounting statement, it does create more volatility especially regarding the equity side. That's why we introduced the operating profit concept last year, yes. Okay, then I'm going to answer your second question, that is Life operating profits. Yes, Life operating profits increased, and overall, our -- the group's profit -- operating profit increased around 17.7%. Our Life side is around 13%, yes, slightly low compared to our previous couple of years. I think the reason is, so the number is still solid, but I think due to the negative growth in your first-year premium in 2018, then it will drag down your amortization of your residual margin because you have less residual margin created compared to previous years. And you have less residual margin, then amortization was still down a little bit. But as I said, for the forecast of new business value and the forecast of these operating profits, I think, in the second quarter, third quarter when our new business growth resumes, become better, then the operating profits grow as well, also become better, yes. So basically, I think the growth on new business value and the gross on operating profits in the first quarter, to some extent, should be the low point for the whole year. And then the third one, the fintech, yes, fintech has a positive contribution of about CNY 1.8 billion. Most of them there -- all of them, this number is operating profit, yes. There is no onetime gains. It is all operating profits. The main contributor are mainly Lufax, then Autohome and also from our E-wallet, yes.
The next question comes from Charles, Sloane Robinson.
Thank you. I -- my question has already been answered. That was the same as Scott's. I'll get back into the queue. Thanks.
Those are popular questions.
Now the next question comes from Deutsche Bank, Esther.
Yes. I have a follow-up question on the impacts, the investment income adjustments that you have, the CNY 4.9 billion. So Jason, earlier, you explained that the first impact could be because on -- from the stocks, that with higher costs now, given the costs now, it's as of December of last year instead of when you bought the investment for example. So would that -- in that case, would that result in a negative adjustment? So what I'm trying to figure out, it's what's in the investment income adjustment. So in that case, for example, if you bought the stock at $100, but it was subsequently adjusted to $150 as of the end of 2017 and now it went to -- perhaps you sold it, so would the $50 that you would otherwise book as gains be booked as a negative $50 under this income -- investment income adjustment? And a follow-up question on that. So there, because of this change, there are a lot of, I guess, a lot of questions. But then should we then be just looking at the comprehensive income? So I guess my question is, would IFRS 9 affect the comprehensive income?
Yes. Simple, simple example, yes. For example, right, 1 year ago, at the beginning of 2017, right, we bought a stock for $100, all right? Then at the end of 2017, that stock goes up to $250, as you said, all right? So we had a lot of unrealized gains. We haven't sold the stock, right? So under the older treatment, older commitment, during 2018 first quarter, I sold that stock for $200, right, for $200, then I'm going to book a $100 profit, right, $100 profit because the cost originally is $100, then now I sold it at $200. So the gain is $100, okay? Then under the new ones, yes, you record a minus $50, yes, under the new way, minus $50. But of course, the balance sheet itself, the net asset doesn't -- it's the same. It's the same. But the profit, it will have this big difference.
Yes. So in other words, we may just have that -- this 1 year of this type of adjustment, and then going forward, it should all be normal again, right? We won't have this...
No, no, no. This situation may happen again, may happen again because I have other stocks which I haven't sold. And under the old one, I can still book profits, but under the new one, you won't be able to book such a big profit, right? So under the new one, all your unrealized gains have been sent into your retained earning. Then your cost is the market value as of 2017 -- end of 2017.
Yes. Esther, I mean, one of the reasons that we introduced the operating profit metric is that the net income under the new accounting is going to have a lot of volatility. So that's the reason why we introduced the operating profit metric, which removes some of that volatility and gives the picture of sort of underlying earnings movement.
Yes. Basically, for equities, you have 2 classifications. One is called just those -- like those ones, you've called out fair value through P&L. Then you also have some other equities. You can classify them as fair values through OCI. For example, we do have a few stocks which we classified as OCI. For example, if we bought ICBC, the stock we bought, ICBC, they pay 5%, 6% dividend, and we intend to hold them long term, okay? So those ones, if they have market value movement, those movement will not go to your P&L, but it will go to your balance sheet, which will affect your OCI. You still have -- going to have some OCI, but the dividends you receive, it's going to go through your P&L, right, go through your P&L. But the other side of this -- the coin is, when you want to sell this stock, for example, if we want to sell ICBC, for example, a portion of that, which my cost is HKD 4. Now it's become HKD 10. Then you sold it. If you classified under the new one the OCI, even you sold it, the profit -- the gains will not go to P&L, yes. But of course, on the balance side -- balance sheet side, the net asset has already been reflected, but yes.
So just to make sure I understand it, so in other words, if we just looked at the comprehensive income, it would have taken off all this nonsense, right?
Yes. The comprehensive income, which we said are -- the total investment yield include the comprehensive income under the -- both the old one and the new one, they are the same.
Yes, yes, okay.
They are the same, yes. This all mark-to-market, they are the same, yes. Total investment income, investment yield include the comprehensive income. They are the same.
Now the next question comes from Charles, Sloane Robinson.
So could you comment on the investment yield, the -- I mean, like total investment yield and the net investment yield, both 3.7%. Just to be clear, so does this number also reflect reduced equity values? And further, if I may, some people seem to have asked more than one question. Could you comment on the weak operating profit at P&C in spite of a stable COR and quite strong price growth in premium?
Sure, sure. Yes, thanks, Charles. Yes, the first one is on the, yes, total investment yield and net investment yield. That's about 3.7%, yes. So it's a bit weak -- it is a bit weak. For net investment yield, usually, in the first quarter, the net -- NII will be slightly lower compared for the whole year because usually, in the first quarter, we have not booked those dividends, which you can get from your stocks and your mutual funds. Usually, those -- usually, stocks and dividends, they pay dividends in the second quarter, right? So the dividends are booked into the NII. So usually, the first quarter NII is relatively low, but then the whole year will improve. Then TII, total investment yield, is also 3.7%. That means there's no contribution at all from the capital gain. Overall, the market is relatively volatile and weak, right, especially in February and in March. So that's the situation. Hopefully, we -- I think when those stocks, like the ICBC, whatever we bought, we can collect dividends, and that will go up in the second quarter and the third quarter. Then regarding the P&C net profit number, yes, the total premium increased around 17%. COR remained stable. So the underwriting profit for P&C business actually, yes, increased, while you see inactive -- small inactive decrease in the net profit. This is mainly due to the tax -- what, an ambulance? This is mainly due to the tax because the P&C business, the commission they paid to certain business, they over -- exceed the tax-deductible percentage, then you have to pay additional tax. So that's why they affect your net profit. Okay? Okay.
So thank you for all of your questions. This concludes today's telephone conference call. I'd like to thank you all once again for joining us today. Thank you very much.
Thanks.