20220704-招银国际-China_Financials_Weekly__Ping_An_agency_scale_bottoming_out__Retail_banking_business_to_remain_muted_24页_1mb

China Financials Weekly Summary

Core Content

This report provides an analysis of the performance and outlook for the Chinese financial sector, focusing on banking and insurance industries. It highlights the expected trends for the third quarter of 2022 (3Q22) and evaluates key metrics such as new business momentum, loss ratios, and valuation indicators.

Key Insights

Banking Sector

• Corporate Lending as Growth Driver: The corporate lending business is expected to be the primary growth driver for the banking sector in 3Q22, while the retail banking business remains subdued.
• Performance by Sub-sector: SOEs and leading regional banks are anticipated to outperform due to more favorable provision strategies and reduced dependency on retail banking.
• NIM and Provision Coverage: SOEs are expected to benefit from the NIM (Net Interest Margin) due to a 10-bp RRR (Reserve Requirement Ratio) cut. Banks with more interbank liabilities may face higher funding costs and underperform.
• Asset Quality: Nationwide-operating banks with high provisions and regional banks in the Yangtze River Delta are expected to have less pressure due to stabilized asset quality.
• Loan Trends: Infrastructure, SME, and green loans are key growth drivers. The recovery of P&C (Property and Casualty) insurance is on track, with improved loss ratios and premium growth rebounding.
• Retail Banking Challenges: Weak demand for mortgages, consumer loans, and credit card lending has impacted retail banking performance. Stock market volatility and unstable fund distribution income further drag on fee and commission income.
• Valuation and Investment: The report includes valuation metrics such as PBV (Price to Book Value) and PER (Price to Earnings Ratio) for various banks, with PSBC (1658 HK) and CCB (939 HK) highlighted as top picks with significant upside potential.

Insurance Sector

• Life Insurance: New business momentum for major life insurers slightly improved in 2Q22, driven by increased sales of paid-up additional whole-life products and annuities. However, critical illness products continue to underperform.
• P&C Insurance: The P&C (Property and Casualty) industry experienced a recovery in 5M22, with a 2.3ppt improvement in the loss ratio YoY and a rebound in premium growth. Auto insurance premium growth increased to 2% YoY in May, while non-auto premiums grew by 8.3% YoY.
• Agency Scale: Ping An (2318 HK) and Taiping Life (966 HK) showed slight improvements in agent headcount, while CPIC (2601 HK) and New China Life (1336 HK) continue to face declining agency numbers.
• Valuation Metrics: The report includes PBV and PER for various insurers, with PICC P&C (2328 HK) and Ping An (2318 HK) highlighted as top picks with significant upside potential.

Key Financial Metrics

Banks

Ticker	Name	Mkt Cap (LC)	Price (LC)	Rating	Target Price (LC)	Upside	P/E (x)	P/B (x)	Dividend Yield (FY22E)	Dividend Yield (FY23E)
1658 HK	PSBC-H	542.9	5.94	BUY	8.40	41%	6.9	6.3	4.7%	5.2%
939 HK	CCB-H	1,320.0	5.27	BUY	8.10	54%	4.1	3.7	7.4%	8.2%
600000 CH	SPDB-A	233.6	7.99	HOLD	9.00	13%	4.5	4.1	5.5%	5.9%
601229 CH	BOSH-A	93.3	6.55	BUY	8.68	33%	3.9	3.5	7.1%	8.1%
3618 HK	CQRCB-H	45.0	2.82	HOLD	3.05	8%	3.2	2.9	9.5%	10.3%
601577 CH	BOCS-A	31.5	7.88	HOLD	8.30	5%	4.6	4.0	5.4%	6.3%
601658 SH	PSBC-A	487.2	5.35	BUY	7.07	32%	6.2	5.6	5.3%	5.7%
601939 SH	CCB-A	1,144.0	6.08	BUY	7.50	23%	4.7	4.3	6.4%	7.1%
601077 SH	CQRCB-A	38.5	3.68	HOLD	3.60	-2%	4.2	3.8	7.3%	7.9%

Insurers

Ticker	Company	Price (LG)	Rating	Target Price (LG)	Upside	P/BV (x)	P/BV (x)	Dividend Yield (FY22E)	Dividend Yield (FY23E)	P/E (x)	P/E (x)
2318 HK	Ping An	53.35	BUY	81.40	53%	0.9 x	0.8 x	5.8%	6.5%	6.9 x	6.2 x
2628 HK	China Life	13.66	BUY	18.18	33%	0.6 x	0.5 x	6.4%	6.9%	5.5 x	5.1 x
2601 HK	CPIC	19.18	BUY	30.49	59%	0.9 x	0.9 x	9.3%	10.5%	7.7 x	6.8 x
1336 HK	NCL	22.05	BUY	32.35	47%	0.4 x	0.4 x	8.9%	10.0%	3.4 x	3.0 x
966 HK	Taiping	9.68	BUY	11.48	19%	0.3 x	0.3 x	7.5%	8.5%	4.0 x	3.5 x
1339 HK	PICC Group	2.40	BUY	3.58	49%	0.4 x	0.3 x	9.9%	11.4%	3.5 x	3.0 x
2328 HK	PICC P&C	8.16	BUY	11.64	43%	0.7 x	0.6 x	7.0%	8.4%	6.0 x	5.0 x
6060 HK	Zhong An	25.55	BUY	33.20	30%	1.6 x	1.5 x	0.0%	0.0%	32.1 x	21.0 x
601318 CH	Ping An	46.31	BUY	67.56	46%	0.9 x	0.9 x	5.5%	6.2%	7.3 x	6.4 x
601628 CH	China Life	31.00	SELL	18.10	-42%	1.6 x	1.5 x	2.3%	2.5%	15.1 x	14.1 x
601601 CH	CPIC	23.46	BUY	30.37	29%	0.9 x	0.8 x	6.3%	7.1%	7.7 x	6.8 x
601336 CH	NCL	32.04	SELL	26.85	-16%	0.8 x	0.7 x	5.1%	5.7%	6.0 x	5.3 x
601319 CH	PICC Group	5.02	SELL	3.72	-26%	0.9 x	0.9 x	3.9%	4.5%	8.7 x	7.6 x

Main Points

• Banking Outlook: Corporate lending is expected to drive growth in 3Q22, with SOEs and regional banks performing better due to their stable asset quality and less reliance on retail banking.
• Insurance Recovery: P&C insurance is recovering, with improved loss ratios and rebounding premium growth. Life insurance shows marginal improvements in new business momentum.
• Agency Scale: Ping An and Taiping Life are bottoming out in terms of agency scale, while CPIC and New China Life are still experiencing a decline.
• Valuation and Performance: PSBC (1658 HK) and CCB (939 HK) are top picks with significant upside potential. PICC P&C (2328 HK) and Ping An (2318 HK) are also highlighted for their strong performance in the insurance sector.
• Market Conditions: Economic performance was weak in 2Q22, and the recovery in P&C insurance is expected to continue in 3Q22.

Conclusion

The report suggests that the banking sector will see growth driven by corporate lending, with SOEs and regional banks leading the way. In the insurance sector, P&C insurance is recovering, and life insurance is showing marginal improvements. The valuation metrics indicate that PSBC, CCB, Ping An, and PICC P&C are the top picks with strong upside potential. The report also highlights the importance of asset quality and the impact of interest rate changes on funding costs.