Ping An Insurance Group Co (SEHK: 02318) and AIA Group Limited (1299 0.23%) are both large insurance companies that are listed on the Hong Kong Stock Exchange. Over the last five years, Ping An's shares have delivered a return of 171% according to S&P Global Market Intelligence, while AIA Group's shares have clocked a gain of 77%.
Both companies have given long-term investors plenty to smile about when we consider that the Tracker Fund of Hong Kong (2800 -2.98%), a low-cost ETF that tracks Hong Kong's stock market barometer, the Hang Seng Index (HSI), delivered a paltry gain of merely 2.3% over the same period.
But which insurance behemoth would likely be the better investment for the next five years? Let's take a look.
On the surface, Ping An Insurance and AIA Group seem like similar businesses, since both are large-cap Hong Kong-listed insurance companies. But there are important differences to appreciate.
Ping An's main geographical market is China, which accounted for more than 95% of the company's total revenue of RMB 1,082 billion in 2018. The company's main businesses include life and health insurance (49% of total revenue), property and casualty insurance (21% of total revenue), and banking (20% of total revenue).
AIA Group, on the other hand, operates in many countries in Asia including Hong Kong, Thailand, Singapore, Malaysia, China, and more. Its total revenue of US$41.0 billion in the 13 months ended 31 December 2018 (the company changed the end-date of its financial year from 30 November to 31 December) came mostly from Hong Kong (41%), Thailand (14%), and China (13%). AIA Group's business activities are focused on life and health insurance products, much more so than Ping An.
Being financial services companies, a great gauge of the underlying economic values of Ping An and AIA Group would be their book values per share. In this regard, Ping An has done significantly better in the past few years.
From 2013 to 2018, Ping An's book value per share compounded at 21.4% per year from RMB 11.54 to RMB 30.44. AIA Group's no slouch, though, but its book value per share grew by a slower 9.3% from US$2.06 to US$3.24 over a similar time frame (from November 2013 to December 2018).
From a dividend-growth perspective, Ping An also comes out ahead. AIA Group's dividend per share tripled from HK$0.4255 in the financial year ended 30 November 2017 to HK$1.235 in 2018; that works out to annual growth of an excellent 23.3%. But Ping An's dividend per share has increased by an even better 39.5% per year from RMB 0.325 in 2013 to RMB 1.72 in 2018.
Winner: Ping An Insurance Group
Future growth opportunities
Low penetration rates for the insurance markets of China and the Asia Pacific (ex-Japan) region bode well for the future growth of both Ping An and AIA Group.
According to a November 2017 analyst report from Singapore's largest bank DBS Group Holdings (D05), China's life insurance and property & casualty insurance markets had penetration rates (defined as insurance premium as a percentage of GDP) of just 2.3% and 1.8%, respectively, in 2016.
On average, other developed nations had penetration rates of 5.1% for life insurance and 3.1% for property & casualty insurance. Meanwhile, in the Asia Pacifc (ex-Japan) region, life insurance spending is just US$178 per capita, according to AIA Group's 2018 fourth-quarter earnings presentation.
In Japan, North America, and Europe, life insurance spending per capita numbers are much higher at US$2,411, US$1,647, and US$965, respectively.
Winner: It's a tie
Given the importance of the book value per share in gauging the underlying economic values of Ping An and AIA Group, a useful valuation metric for the two companies is the price-to-book (PB) ratio.
At the time of writing, Ping An's share price of HK$90.30 gives it a PB ratio of 2.3, whereas AIA Group's share price of HK$77.35 confers a higher PB ratio of 3.0. All other things being equal, Ping An currently has the more attractive valuation.
Winner: Ping An Insurance Group
Both Ping An and AIA Group have bright growth prospects given their historical track records and the large room for growth found in their respective insurance markets. But Ping An has the better historical growth rates and valuation compared to AIA.
So although it's likely that both companies will come out well ahead of the overall Hong Kong stock market in the next five years, Ping An seems to be the better choice of the two for now.
A version of this article originally appeared on our Fool Asia site. For more coverage like this head over to Fool.hk.en.