Johannesburg - Financial services group Discovery Holdings may pick up a positive spin-off from its investment in Ping An Health, after the Chinese firm topped a leading investment bank's list of promising shares in that country.
Discovery is acquiring a 24.99% stake in Ping An Health, a subsidiary of Ping An Insurance, the world's third-largest insurance company. The transaction, announced in December, is awaiting regulatory approval.
In a note to clients on the Chinese investment market, Deutsche Bank analyst Jun Ma said the Ping An group "tends to outperform in a rising interest rate environment" and is its preferred insurance sector player.
"We expect the key players to benefit from the acceleration in premium growth, rising fixed income yields [on inflation and rate hikes], and structural reforms including pension and healthcare reforms," Jun Ma said.
According to Discovery CEO Adrian Gore, Ping An Health holds one of the few health insurance licences issued by the Chinese Insurance Regulatory Commission. Discovery will offer its systems and knowledge of the healthcare sector to Ping An, which holds a retail customer base in excess of 47 million.
Analysts are bullish about the Chinese market's 2010 prospects.
"For 2010, we are positive about the macroeconomic picture for the core emerging Asian markets of China and India. China weathered the global storm remarkably well," said Jonathan Schiessl, Asian equity specialist at Ashburton.
Upbeat on prospects
"We think economic growth will continue to accelerate as the huge government stimulus actually reaches the real economy. This - combined with an increase in private capital expenditure, a recovery in exports and continued strong domestic consumption - should push [China's] 2010 GDP [gross domestic product] growth to around 8.5% to 9.5%."
Predictions like these are bound to keep Discovery shareholders interested in Ping An's performance, considering the rewards that companies such as Naspers and SABMiller have reaped in China.
In the case of Naspers' investment in internet firm Tencent, the SA media giant was boosted by Tencent's 79% profit increase in 2009, contributing to a 29% revenue increase for Naspers' internet division.
Although the transaction itself is not a particularly big one for either Discovery or Ping An, its significance may become apparent in the long term because of rapid growth in the Chinese financial services market.
Research group McKinsey & Company estimated that in 2008 private healthcare premiums in China reached about R59bn, up from R21bn in 2007. Continued growth is expected.
Independent Securities broker Simon Fillmore told Fin24.com his firm is upbeat about Discovery's prospects.
He said the joint ventures with Ping An in China and Prudential in the UK are likely to yield dividends as the business relationships mature.
"They learnt from their mess in US where they did not have the correct distribution channel," he said, referring to Discovery's failed US project Destiny Health. Fillmore said a major competitive advantage for Discovery is its technology and systems, developed in the local market.
By midday on Monday, trade in Discovery was down 5c (0.2%) to 3 175 cents per share.
- Fin24.com