20160906-招商证券_香港_-1H16_results_mixed._Take_profit_in_the_near_term_15页_1mb_1mb

China/HK Insurance Sector Summary

Core Content

This report provides an analysis of the performance and outlook for the China/HK insurance sector, focusing on the 1H16 results and future earnings forecasts. It highlights the mixed performance of major insurers and offers investment recommendations based on revised estimates and market conditions.

Main Points

1. 1H16 Results Overview

• Performance:

  • Ping An and PICC exceeded expectations with strong profit growth.
  • NCI, China Life, and Taiping underperformed, with NCI showing the most significant weakness.
  • CPIC and China Re met expectations.

• Outlook:

  • PICC and Ping An are expected to maintain strong performance.
  • NCI is entering a new phase of restructuring, which is expected to improve its NBV and profit.
  • China Life, CPIC, and Taiping may face pressure at the beginning of the next year.
  • China Re continues to be solid, but its ROE is relatively low.

• Investment Recommendation:

  • The report suggests taking profit in the near term, despite attractive valuations.
  • A potential buying opportunity is expected after a pullback, likely in December.
  • Top picks include PICC, Ping An, and NCI.

2. Earnings Forecasts and Target Prices

• Revisions:

  • Investment income for 2017/2018E was reduced, leading to revised earnings forecasts for life insurers.
  • PICC and China Re's 2017/2018E estimates were also cut.

• Target Prices (2017E):

  • AIA: HK$33.07
  • Ping An: HK$50.52
  • China Life: HK$22.67
  • CPIC: HK$33.07
  • NCI: HK$39.83
  • China Re: HK$15.98
  • Taiping: HK$17.94

• Average Increase in TP:

  • The 2017E target prices are 7.8% higher on average compared to previous estimates.

3. Market Valuation and Risk Factors

• Valuation:

  • The life insurance sector is trading at 2016/2017E 0.76/0.68x, which is 1.15 SD below the average since 2011.
  • The report suggests that the recent rebound in the sector is over and that a 15-20% adjustment is likely due to rising USD rate hike expectations, US presidential election, and economic pressures in China.

• Key Factors:

  • NCI is expected to benefit from restructuring and improved product margins.
  • Ping An and PICC are likely to maintain strong combined cost ratios and ROE.
  • China Life, CPIC, and Taiping are expected to face short-term challenges, though long-term valuations are considered attractive.

Key Information

• Financial Highlights:

  • Ping An saw a 36.7% increase in net profit attributable to parent shareholders in 2016E.
  • PICC maintained a high ROE and is considered a top pick for the fourth quarter.
  • NCI is undergoing restructuring and is expected to see margin improvements.

• Earnings Estimate Revisions:

  • Ping An had a 3.5% increase in written premium but a -2.3% decrease in earned premium.
  • CPIC saw a 2.0% increase in written premium and a -12.8% decrease in earned premium.
  • NCI experienced a -8.1% decrease in written premium and a -4.2% decrease in earned premium.

• Valuation Metrics:

  • EVPS (Enterprise Value per Share) for Ping An and PICC is expected to decline.
  • P/EV (Price to Enterprise Value) for Ping An and PICC is also expected to decrease.
  • NBV (New Business Value) growth for Ping An is 30.7%, while for CPIC it is 6.6%.

• Sector Performance:

  • The sector showed an absolute return of 8.4% over the last month.
  • The relative return was 3.7% over the last month.
  • The sector had a negative return of 5.6% over the last 12 months.

Investment Strategy

• Take Profit:

  • The report advises investors to take profit in the near term, as the recent rally is considered over.
  • A potential buying opportunity is anticipated after a pullback, likely in December, based on the performance of 4Q16E results.

• Top Picks:

  • PICC, Ping An, and NCI are recommended as top picks due to their strong performance and restructuring efforts.

• Risk Consideration:

  • The report highlights potential risks such as USD rate hikes, US presidential election, economic pressures, and profitability challenges for some insurers.

Conclusion

The report suggests a short-term profit-taking strategy due to overbought conditions and potential market corrections. It emphasizes the resilience of PICC and Ping An, while NCI is seen as a long-term opportunity due to its restructuring efforts. China Life, CPIC, and Taiping are expected to face short-term challenges, but their long-term valuations are considered attractive. The 2017E target prices are revised based on updated financial projections and market conditions.