Leading insurer with strong profit growth Bloomberg Reuters POEMS 1339.HK 1339.HK 1339.HK Industry: Financial Strong profit growth and large capital pressure Rating: Speculative Subscribe CP: None TP: HK$4.29 Company introduction The People s Insurance Company of China ( PICC or the Group) was founded in Oct 1949, which was the first national insurer in the PRC, and becomes one of the largest integrated insurance financial groups today. The Group owns P&C insurance, life insurance and health insurance and other non-insurance businesses such as banking and trusts. PICC ranked 292 nd on the Global 5 (212) published by Fortune magazine. According to the data from CIRC, as at the end of 211 and 1H212, PICC ranked 1 st in all domestic P&C insurers, and 5 th and 3 rd in all domestic life insurers respectively. Summary Phillip Securities (Hong Kong) Ltd Phillip Securities Research Total assets of PICC increased stably by 11.4% to RMB585.152 billion compared with the end of 211, with the BVPS of RMB1.15, up by 26.77% sharply, but still obvious lower than other large insurers; There are some conflicts between PICC and its subsidiary, PICC P&C because it took the large portion of the Group s total profit, which make the imbalance of main parts of the Group s insurance businesses; Additionally, PICC also faced large capital pressure, which is one of main reasons the Group wanted to raise funds. As at the end of 1H212, the Group s solvency margin ratio decreased by 9 percentage points compared with the end of 211, especially such ratio of health insurance recorded only 11%; According to PICC s announcement, it would start to take IPO application today, and listed in H Shares on 7 th Dec, based on the middle price of the range of offering price as HK$3.73, the Group may raise fund with the amount over HK$25.7 billion, the largest one after ABC s IPO in recent two years; During the offering, PICC plans to issue 6.898 billion shares, including 5% of public offer with the amount of 345 million shares and 95% of international placement. The offering price is between HK$3.42 and 4.3, obvious lower than the peers. There are 17 cornerstone investors announcing they will subscribe the shares of PICC, including AIG (US$5m), State Grid Yingda International (US$3m), Munsun Financial Investment Fund (US$14m), China Life and China Export & Credit Insurance (US$1m each), and so on, with the amount of US$1.77 billion in total, over 5% of total funds; We forecast EV of PICC Life insurance would be RMB.95 and 1.2 in 212 and 213 respectively, and add other businesses, such as P&C and Health insurance together, based on SOPT, we estimate PICC s intrinsic value should be around HK$3.9 in 213, and we give its 12-m TP to HK$4.29% after the offering considering its leading position in the industry and larger potential growth of businesses such as life insurance, slightly higher than the upper price of the range of the offering price. Recommend Speculative Subscribe. Research analyst Xingyu Chen chenxingyu@phillip.com.cn +86 21 5169 94-15 The management stated the funds of the offering would be used to strengthen its capital and support for the future business development; According to its web proof information pack, as at the end of 1H212, PICC s premium income increased stably, and total premium and net written premium increased by 7.98% and 7.41% respectively. Net profits attributed to the shareholders of parent increased largely by 22% to RMB4.923 billion, much higher than the peers; 1 of 1
Fig 1. Premium incomes of PICC s P&C and Life insurance Growth rate of premium income y- y 1.% P&C Insurance Life Insurance Fig 4. Net profit growth of some domestic insurers in 1H212 Net profit growth rate y-y 3.% 8.% 6.% 4.% 2.% 1.%.% -1.% China Life China Pingan CPIC PICC NCL 2.% -2.%.% -2.% Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12-3.% -4.% -5.% -4.% Source: CRIC, Phillip Securities -6.% Fig 2. Structure of PICC s P&C insurance products 8 7 6 5 4 3 2 1 Fig 3. Changes of PICC s combined ratio Ratio (%) 12 1 8 6 4 2 Portion of products to total P&C insurance premium income (%) 29 21 211 1H212 Loss ratio Expense ratio Combined ratio 29 21 211 1H212 Motor vehicle insurance Commercial property insurance Liability insurance Accidental injury adn short-term health insurance Cargo insurance Other P&C insurance Fig 5. PICC s solvency margin ratio Solvency margin ratio (%) 25 2 15 1 5 Fig 6. Solvency margin ratio of some domestic insurers in 1H212 Solvency margin ratio (%) 3 25 2 15 1 5 Group Life Insurance 29 21 211 1H212 1H212 China Life China Pingan CPIC PICC NCL P&C Insurance Health Insurance Table 1. Changes of PICC s investment portfolio and yields 29 21 211 1H212 Portion Yield Portion Yield Portion Yield Portion Yield Cash and cash equivalents 15.2% 1.8% 1.9%.71% 11.5% 1.2% 12.9%.45% Fixed-income investments 62.3% 3.79% 69.3% 4.11% 66.8% 4.42% 62.7% 4.82% Equity and fund investment 13.7% 17.14% 13.2% 11.44% 12.5% -2.73% 13.1%.63% Others 8.8% 6.78% 6.6% 7.33% 9.3% 8.28% 11.3% 8.3% Total investment assets 1% 5.42% 1% 5.18% 1% 3.63% 1% 4.47% 2 of 2
Financial Status Income Statement (RMB Million) 29 21 211 212E 213E Gross w ritten premiums 168,552 229,44 249,47 268,971 295,868 Premiums ceded to reinsurers (16,695) (18,155) (39,2) (32,336) (34,923) Net w ritten premiums 151,857 211,285 29,847 236,635 26,945 Change in unearned premium reserves (1,32) (14,24) (3,499) (9,662) (11,595) Net earned premiums 141,555 197,81 26,348 226,973 249,35 Reinsurance commission income 3,49 5,579 13,34 1,655 12,786 Investment income 9,899 14,25 13,799 19,49 27,286 Other income 2,621 2,991 2,84 2,72 2,176 Total income 157,565 219,856 236,291 259,19 291,599 Life insurance death and other benefits paid 965 3,984 19,557 12,954 14,25 Claims incurred 65,988 84,726 9,82 93,346 98,13 Changes in long-term life insurance contract liabilities 43,856 65,919 48,254 64,35 8,438 Policyholder dividends 126 977 2,394 2,621 2,884 Claims and policyholder's benefits 11,935 155,66 16,287 173,272 195,584 Handling charges and commissions 14,494 17,268 18,19 21,42 25,682 Finance costs 2,33 3,288 4,665 5,258 6,47 Exchange (gains)/losses, net 12 41 424 5 5 Other operating and administrative expenses 28,17 36,497 43,424 45,516 49,157 Total benefits, claims and expenses 155,878 213,69 226,99 245,948 276,97 Share of profit of associates 528 741 828 526 684 Profit before tax 2,215 7,528 1,21 13,768 15,312 Income tax (464) (1,681) (2,313) (3,49) (3,75) Income tax rate 2.95% 22.33% 22.65% 24.76% 24.49% Profit for the year 1,751 5,847 7,897 1,359 11,562 Minority interest 643 1,86 2,712 2,887 3,89 Net profit attributable to equiry holders of the par 1,18 3,987 5,185 7,472 8,473 Items per share 29A 21A 211A 212E 213E Basic EPS (RMB).4.13.16.18.2 BVPS (RMB).63.68.67 1.3 1.67 Financial ratio 29A 21A 211A 212E 213E ROAE 5.7% 17.6% 19.% 28.5% 29.1% Solvency margin ratio 139% 125% 165% 185% 21% P/E (x) 95.2 26.5 22.9 19.1 16.8 P/B (x) 5.4 5.1 5.1 2.7 2.1 Source: Company, PSR 3 of 3
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Contact Information (Regional Member Companies) SINGAPORE Phillip Securities Pte Ltd Raffles City Tower 25, North Bridge Road #6- Singapore 17911 Tel : (65) 6533 61 Fax : (65) 6535 6631 Website: www.poems.com.sg HONG KONG Phillip Securities (HK) Ltd Exchange Participant of the Stock Exchange of Hong Kong 11/F United Centre 95 Queensway Hong Kong Tel (852) 227766 Fax (852) 2868537 Websites: www.phillip.com.hk INDONESIA PT Phillip Securities Indonesia ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A Jakarta 122 Indonesia Tel (62-21) 5798 Fax (62-21) 57989 Website: www.phillip.co.id THAILAND Phillip Securities (Thailand) Public Co. Ltd 15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok 15 Thailand Tel (66-2) 63517 / 2268999 Fax (66-2) 2268921 Website www.phillip.co.th UNITED KINGDOM King & Shaxson Capital Limited 6th Floor, Candlewick House, 12 Cannon Street, London, EC4N 6AS Tel (44-2) 7426 595 Fax (44-2) 7626 1757 Website: www.kingandshaxson.com MALAYSIA Phillip Capital Management Sdn Bhd B-3-6 Block B Level 3 Megan Avenue II, No. 12, Jalan Yap Kwan Seng, 545 Kuala Lumpur Tel (63) 21628841 Fax (63) 2166599 Website: www.poems.com.my JAPAN PhillipCapital Japan K.K. Nagata-cho Bldg., 8F, 2-4-3 Nagata-cho, Chiyoda-ku, Tokyo 1-14 Tel (81-3) 35953631 Fax (81-3) 3595363 Website:www.phillip.co.jp CHINA Phillip Financial Advisory (Shanghai) Co. Ltd No 55 Yan An East Road, Ocean Tower Unit 2318, Postal code 21 Tel (86-21) 516992 Fax (86-21) 6351294 Website: www.phillip.com.cn FRANCE King & Shaxson Capital Limited 3rd Floor, 35 Rue de la Bienfaisance 758 Paris France Tel (33-1) 456331 Fax (33-1) 4563617 Website: www.kingandshaxson.com UNITED STATES Phillip Futures Inc 141 W Jackson Blvd Ste 35 The Chicago Board of Trade Building Chicago, IL 664 USA Tel +1.312.356.9 Fax +1.312.356.95 AUSTRALIA PhillipCapital Australia Level 37, 53 Collins Street, Melbourne, Victoria 3, Australia Tel (613) 9629838 Fax (613) 9614839 Website: www.phillipcapital.com.au 5 of 5