20220210-招银国际-China_Financials_Weekly__Life_slow_jumpstart__Limited_impact_from_new_rules_on_overseas_loans_23页_2mb

China Financials Weekly Summary

Core Content

This document provides an analysis of the performance and outlook for the China financials sector, focusing on the insurance and banking industries, along with trading bands for key valuation metrics.

Insurance Sector

• Life Insurance:

  • Life insurers experienced a YoY decline in protection new business in January 2022, likely leading to margin contraction and a decrease in Value of New Business (VNB) in 1Q22.
  • The decline is attributed to a high base of rush orders before the shift of critical illness standards in February 2020.
  • Some insurers reduced product margins to chase volume.
  • P&C (Property and Casualty) insurers showed stronger performance, with P&C premiums growing by +13.2% in December 2021, compared to 0.3% in October and 5.6% in November 2021.
  • Auto premium growth reached +7.4% in December, up from 2.4% in October and 6.6% in November.
  • PICC P&C (2328 HK) outperformed peers with 30% total premium growth and 10% auto premium growth.

• Recommendations:

  • Maintain preference for P&C over life insurance.
  • Recommend PICC P&C (2328 HK) as a top pick in the insurance space.
  • Recommend Ping An (2318 HK) and CPIC H (2601 HK) for proactive agency upgrades.

Banking Sector

• FY21 Financial Statistics:

  • M2 balance grew +9% YoY in FY21, slightly weaker than FY20 but showing an acceleration in 4Q21.
  • Total loan growth reached 11.3% YoY, with RMB loan growth at 11.6% YoY.
  • Corporate loans accounted for 60% of the increased loan volume.
  • 76.7% of increased loans were mid and long-term.
  • RMB deposit balance grew +9.3% YoY, with 50.3% coming from households.

• New Rules on Overseas Loans:

  • The new rules restrict the use of overseas loans for security investment and debt repayment from "内保外贷".
  • They also prohibit transferring overseas loans to domestic through lending or investment.
  • Total overseas loan balance at the end of 2021 was RMB 4.26tn, accounting for 2.2% of total loan balance.
  • The rules aim to:
    1. Encourage banks to issue more RMB overseas loans instead of foreign currency loans.
    2. Prevent speculation in the cross-border financial system.
  • Most overseas loans are foreign currency, which require more tier-1 capital, incentivizing banks to push for RMB loans.

• Recommendations:

  • Maintain PSBC (1658 HK) as the top pick in the banking sector.
  • Lift the target price of PSBC (1658 HK) to HK$7.70, implying 0.92x 2021E and 0.85x 2022E P/B.
  • Lift the target price of CCB (601939 CH) from RMB 7.0 to RMB 7.50, implying 0.76x 2021E and 0.7x 2022E P/B.
  • The current P/B of PSBC (H) is 0.73x, close to its historical mean of 0.72x.

Key Information

• Stocks Covered: A variety of stocks across banking, insurance, and brokers are analyzed with their respective ratings and target prices.
• Trading Bands:
  • PBV (Price to Book Value) and PER (Price to Earnings Ratio) are provided for different sectors, offering insights into valuation ranges.
  • These bands help investors understand the relative value of stocks within the financial sector.

Summary of Ratings

Analyst Certification and Disclaimers

• The research analyst certifies that the views expressed reflect their personal opinions and that no part of their compensation is related to the report.
• The analyst confirms no trading or dealing in the stocks covered within 30 days before the report was issued.
• CMBIS provides the information on an "AS IS" basis, with no guarantees of accuracy or completeness.
• The report may be subject to change without notice.
• CMBIS may have conflicts of interest due to investment banking relationships with the companies mentioned.
• The report is for the use of intended recipients only and cannot be reproduced or distributed without prior consent.