20211210-招银国际-中国财险-02328.HK-Auto_growth_pick_up__Non-auto_UW_to_improve_3页

PICC P&C (2328 HK) Summary

Core Content

This report provides an equity research update on PICC P&C (2328 HK), highlighting recent performance, future outlook, and key financial metrics. The analysis suggests that the company is poised for improvement in both auto and non-auto underwriting profitability, supported by a recovery in auto premium growth and regulatory changes that could enhance its solvency position.

Main Points

Auto Insurance Recovery

• In October 2021, PICC's auto insurance premium income increased by 6.5% YoY, ending months of decline.
• This growth is attributed to the low base effect following the Comprehensive Reform of Auto Insurance launched on 19 Sep 2020.
• The auto combined ratio declined by 0.7ppt YoY to 98.8%, reversing a previous upward trend.
• The auto expense rate dropped by 18ppt YoY, while the loss ratio increased by 17.3ppt YoY.
• The report expects high single-digit growth in auto premium income through 4Q21 and FY22.

Non-Auto Underwriting Improvement

• In 9M21, industry auto insurance premium income decreased by 9.4% YoY, prompting insurers to focus more on the non-auto segments.
• This led to increased competition in non-auto space, raising combined ratios (except for credit insurance of financing business).
• With the recovery of auto premium growth in 2022, the competition for non-auto growth is expected to ease, contributing to improved underwriting profitability.

Regulatory Changes and Solvency

• The C-ROSS 2.0 solvency regime is expected to be launched in 1Q22.
• The updated regime is estimated to result in lower haircuts on core solvency margin for P&C insurers compared to life insurers.
• Government-sponsored business (e.g., agricultural insurance, serious disease insurance) will be assigned lower risk factors, benefiting PICC, which has the largest market share in these segments.

Earnings and Valuation

• Earnings forecast has been increased for FY22E-FY23E.
• The stock is trading at a historical trough valuation of 0.6x P/BV FY22E.
• The dividend yield is over 8%, indicating strong shareholder returns.
• The target price has been rolled over to HK$11.53, up +68.3% from the previous target price of HK$9.99.
• The current price is HK$6.85, and the stock is reiterating a Buy recommendation.

Key Financial Highlights

Earnings Summary

• Underwriting profits are expected to grow from RMB 3,177 mn (FY19A) to RMB 8,337 mn (FY23E).
• Net profits are projected to rise from RMB 24,282 mn (FY19A) to RMB 29,898 mn (FY23E).
• EPS is expected to increase from RMB 1.1 (FY19A) to RMB 1.3 (FY23E).
• ROE is projected to rise from 15.6% (FY19A) to 13.3% (FY22E) and 13.3% (FY23E).

Valuation Metrics

• PER is expected to decrease from 5.2 (FY19A) to 4.2 (FY23E).
• PBR is projected to fall from 0.7 (FY19A) to 0.5 (FY23E).
• Dividend yield is expected to increase from 8.1% (FY19A) to 9.5% (FY23E).

Investment and Balance Sheet

• Investment assets are expected to grow from RMB 342,316 mn (FY19A) to RMB 477,795 mn (FY23E).
• Total assets are projected to increase from RMB 596,081 mn (FY19A) to RMB 824,972 mn (FY23E).
• Total equity is expected to grow from RMB 169,954 mn (FY19A) to RMB 233,906 mn (FY23E).

Shareholding and Performance

• PICC Group holds 68.98% of the shares.
• Free float is 31.02%.
• The stock has underperformed in the short term, with a 1-mth return of -1.7% and a 3-mth return of -7.4%.
• Relative performance has been 0.5% (1-mth) and -1.8% (3-mth).

CMBIS Ratings

• BUY: Stock with potential return of over 15% over next 12 months.
• HOLD: Stock with potential return of +15% to -10% over next 12 months.
• SELL: Stock with potential loss of over 10% over next 12 months.
• NOT RATED: Stock not rated by CMBIS.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.

Analyst Certification

• The research analyst certifies that the views expressed accurately reflect his or her personal views.
• No part of the analyst's compensation is directly or indirectly related to the views expressed.

Important Disclosures

• The report is for informational purposes only and not investment advice.
• Past performance does not guarantee future results.
• Investors are advised to consult a professional financial advisor.
• The report may not be reproduced, reprinted, sold, redistributed, or published without prior written consent.

Conclusion

PICC P&C is expected to outperform the industry in 2022, with improvements in underwriting margin and recovery in auto premium growth. The low base effect and regulatory changes are key drivers of this outlook. The stock is currently undervalued, with a dividend yield over 8%, and is reiterated as a Buy.