Life NBV [Table S Should Continue Fast Growth, Maintain ...also contributed in offsetting declining bancassurance premiums. Life NBM improved 2.6 ppts to 7.3%, which fueled a 37.7%

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[Table_Title] Company Report: PICC Group (01339 HK) Wiley Huang 黄重钧

(852) 2509 5409

公司报告：人保集团 (01339 HK) [email protected]

14 May 2018

[Table_Summary] Life NBV Should Continue Fast Growth, Maintain "Accumulate" 寿险新业务价值应该继续快速增长，维持“收集”

PICC P&C experienced both premiums and net profit growth in 1Q18, while PICC

Life 1Q18 net profit increased sharply despite life premiums decline. PICC P&C’s

1Q18 combined ratio improved 0.4 ppt as a 0.7 ppt increase in loss ratio offset the 1.1

ppt decline in expense ratio. PICC Life premiums declined 11.9% in 1Q18, but net profit

was up 10.6x due to less insurance liability accrued. PICC Group’s 2017 shareholders’

profit missed expectations on decline in life net profit. PICC P&C still contributed most

profit. Meanwhile, PICC Life’s NBV continued to surge due to NBM improvement.

PICC P&C saw stable premiums growth in 2017, while underwriting profit was up 85.0%

due to a 1.1 ppt improvement in combined ratio. However, its net profit was dragged

down by high tax rate. PICC Life’s GWP growth slowed down to 0.7% due to shrinkage

in single premiums and bancassurance premiums. Nevertheless, individual channel

first-year regular premiums increased 45.3%. Besides, the growth in renewal premiums

also contributed in offsetting declining bancassurance premiums. Life NBM improved 2.6

ppts to 7.3%, which fueled a 37.7% increase in life NBV. Considering protection

oriented insurance sales, we expect bancassurance and single premiums to fall in

2018. Meanwhile, Individual regular FYP should maintain robust growth.

Therefore, Life NBM should be further increased, which should power Life NBV

expansion.

We maintain the "Accumulate" investment rating, but lower target price to

HK$4.15. To reflect growth potential of P&C and correct pessimistic forecast of life, we

increase net earned premiums forecasts. Shareholders’ profit has been revised up, but

is still trapped by high tax rate. Considering pessimistic investment sentiment, we

increase NAV discount to 42.0%. By applying SOTP valuation, our target price is set at

HK$4.15.

财险业务在 2018 年 1 季度录得保费和利润上的双增长，同期寿险业务尽管保费下降但仍

录得净利润大增。由于赔付率 0.7 个百分点的增加以及费用率 1.1 个百分点的下降，人保

财险 2018 年 1 季度的综合成本率改善 0.4 个百分点。人保寿险的 2018 年 1 季度毛保费下

降 11.9%，但是净利润因为寿险责任准备金的计提的下降而增加 10.6 倍。人保集团的 2017

年股东净利因寿险利润下降而差于预期。人保财险仍然贡献最多的利润。同时，由于新业

务利润率的改善，人保寿险的新业务价值继续高速增长。

人保财险的 2017 年保费增长稳定，承保利润得益于 1.1 个百分点的综合成本率改善，增

长 85.0%。但是，净利润的增长被高税率拖累。人保寿险的毛保费增长放缓至 0.7%，主

要是因为趸缴保费和银保渠道保费规模的收缩。然而，代理人渠道首年保费则增长了

45.3%。此外，续期保费的增长也有助于抵消银保保费下降的影响。寿险新业务价值率提

高 2.6 个百分点至 7.3%，从而推动了寿险新业务价值 37.7%的增长。考虑到保障型产品

为导向的销售环境，我们预计 2018 的银保和趸缴保费将下降。同时，代理人渠道的期缴

新单保费的强势增长应该会持续。因此，寿险新业务价值率应将进一步提升，这将有助于

寿险新业务价值的增长。

我们维持“收集”的投资评级，但是将目标价降低至 4.15 港元。为了反映财险保费增长

的潜力以及修正之前过于悲观的寿险保费预测，我们提高了净赚保费的预测。股东净利的

预测也有相应提高，但是仍被高税率所困扰。考虑到悲观的投资情绪，我们将每股估值折

让增加至 42.0%。我们采用分部加总的估值方法，将目标价定至 4.15 港元。

[Table_Rank] Rating: Accumulate

Maintained

评级：收集 (维持)

[Table_Price] 6-18m TP 目标价: HK$4.15

Revised from 原目标价: HK$4.75

Share price 股价: HK$3.810

Stock performance

股价表现

[Table_QuotePic]

[Table_PriceChange] Change in Share Price

股价变动

1 M

1 个月

3 M

3 个月

1 Y

1 年

Abs. % 绝对变动 %

0.8 (5.7) 18.3

Rel. % to HS Index 相对恒指变动 %

(1.6) (9.1) (7.1)

Avg. Share price(HK$) 平均股价（港元）

3.6 3.9 3.7

Source: Bloomberg, Guotai Junan International.

[Table_Profit] Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE

年结收入股东净利每股净利每股净利变动市盈率每股净资产市净率每股股息股息率净资产收益率

12/31 (RMB m) (RMB m) (RMB) (△ %) (x) (RMB) (x) (RMB) (%) (%)

2016A 443,323 14,245 0.336 (27.0) 10.2 2.972 1.1 0.034 1.0 11.8

2017A 483,775 16,099 0.379 12.8 8.1 3.242 1.0 0.038 1.2 12.2

2018F 528,112 20,073 0.473 24.8 6.5 3.628 0.9 0.047 1.5 13.8

2019F 576,726 22,341 0.527 11.4 5.9 4.068 0.8 0.053 1.7 13.7

2020F 626,304 24,244 0.571 8.3 5.4 4.541 0.7 0.057 1.8 13.3

[Table_BaseData] Shares in issue (m) 总股数 (m) 42,424.0 Major shareholder 大股东 Ministry of Finance 70.5%

Market cap. (HK$ m) 市值 (HK$ m) 161,635.4 Free float (%) 自由流通比率 (%) 29.5%

3 month average vol. 3 个月平均成交股数 (‘000) 41,900.7 FY18 P/B (x) FY18 市净率 (x) 0.9

52 Weeks high/low (HK$) 52 周高/低 (HK$) 4.800 / 3.210 FY18 Targeted P/B (x) FY18 目标市净率 (x) 0.9

Source: the Company, Guotai Junan International.

(10.0)

0.0

10.0

20.0

30.0

40.0

50.0

May-17 Aug-17 Nov-17 Jan-18 May-18

% of return

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[Table_PageHeader] PICC Group (01339 HK)

In 1Q18, PICC P&C (02328 HK) saw steady growth in both premiums and net profit, while PICC Life and PICC Health

recorded large improvement in net profit despite that premiums growth slowed down. PICC P&C 1Q18 results were

better than expected, with 19.8% gross written premium (GWP) growth and 16.9% net profit increase. Our estimated combined

ratio declined 0.4 ppt as a 1.1 ppt decline in expense ratio offset the 0.7 ppt increase in loss ratio. However, high tax rate was

still dragging down P&C net profit expansion. Despite that GWP growth of PICC Life and PICC Health slowed down in 1Q18,

net profit increased significantly, benefiting from less life insurance liability accrued. Besides, PICC Group presented its digital

digitalization and fintech development on investors’ day. We believe that the Company should further improve pricing accuracy

and operation efficiency by adopting the digitalization strategy. As for the A-share listing, the Management did not indicate a

clear timetable. But the good news is that its A-share pre-disclosed prospectus was updated on March 2018 implying that the

listing should be closer. Besides, PICC Group announced that PICC Life obtained approval to issue capital supplementary

bond of RMB12 bn on 11 May.

Table-1: PICC Group’s 1Q18 CAS Results (RMB mn) 1Q18 1Q17 YoY

PICC P&C Gross written premiums 106,176 88,631 19.8%

Estimated underwriting profit 77,975 65,360 19.3%

Net profit 5,403 4,621 16.9%

PICC Life

Gross written premiums 56,774 64,452 (11.9%)

Net profit 1,776 153 10.6x

PICC Health


Net profit 7 (73) n.a.


PICC Group’s 2017 results were below expectations, mostly due to high tax rate in the P&C business. Gross written

premiums of PICC Group increased by 8.3% to RMB476.4 bn in 2017. Given that life and health premiums suffered from

growth slowdown, P&C was the leading power in premiums growth. Total investment income increased by 11.3% to RMB48.4

bn. Shareholders’ profit was up 13.0% to RMB16.1 bn. Among different business lines, P&C continued to be the biggest profit

contributor, whereas life experienced net profit decline as handling fees and commission increased sharply due to more

individual agent channel regular premiums sales.

Table-2: PICC Group’s FY17 Financial Data (RMB mn) 2017 2016 YoY

PICC Group Gross written premiums 476,447 439,874 8.3%

Total investment income 48,352 43,461 11.3%

Profit before tax 30,831 25,319 21.8%

Shareholders' profit 16,099 14,245 13.0%

Earnings per share (RMB) 0.38 0.34 11.8%

Dividend per share (RMB) 0.04 0.03 13.0%

PICC P&C

Gross written premiums 350,898 311,306 12.7%

Underwriting profit 9,295 5,024 85.0%

Combined ratio 97.0% 98.1% Decrease of 1.1 ppts

Profit for the year 22,181 20,482 8.3%

PICC Life

Gross written premiums 106,299 105,548 0.7%

First-year regular premiums 20,294 16,101 26.0%

New business value 5,687 4,131 37.7%

Embedded value 61,909 57,558 7.6%

PICC Health


First-year regular premiums 823 524 57.1%

New business value 468 325 44.0%

Embedded value 7,831 7,118 10.0%


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PICC P&C’s underwriting profit surged, but profit after tax was dragged down by increasing tax rate. With stable

premiums growth and improvement in combined ratio of 1.1 ppt, PICC P&C saw underwriting profit recovery, recording 85.0%

in 2017. However, high underwriting expense led to an increase in tax rate as expenses exceeding a certain percentage will not

be deducted and should be rebated to tax expense. Therefore, profit after tax only increased 8.3% in 2017. For more details of

P&C business, please refer to our latest report on PICC P&C (02328 HK), "Underwriting Profit Recovered, High Tax Rate is

Expected to Sustain, Maintain "Accumulate"".

PICC Life’s GWP expansion cooled down to 0.7%, but high quality individual agent channel first-year regular

premiums maintained robust growth of 45.3%. Affected by suspension of short-term wealth management product sales in

October 2017, PICC Life’s GWP growth dropped to 0.7% in 2017 from 16.6% in 2016. Due to a 22.6% and 26.7% shrinkage in

the bancassurance channel and the individual channel, total first-year premiums (FYP) were down 12.4% YoY. However,

renewal business and individual agent channel first-year regular premiums supported growth. Bancassurance and individual

agent channel renewal premiums increased 1.45x and increased 76.0% YoY, respectively, while individual agent channel

first-year regular premiums increased 45.3% YoY. Individual sales agent headcount was up 35.2% YoY to 255,908. Due to

relatively small size, agent headcount achieved 20.1% HoH growth in 2H18. A sharp decline in bancassurance premiums,

premium structure optimized with individual agent channel FYP contribution increasing to 40.3% was seen in 2017. Under

current protection oriented product sales, we expect bancassurance premiums and single individual premiums to continue to

fall. Affected by shrinkage of wealth management products, we believe that the individual agent channel first-year regular

premiums will maintain steady growth in 2018F-2020F.

Figure-1: PICC Life’s GWP by Channel Figure-2: PICC Life’s FYP by Channel

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Figure-3: PICC Life’s Renewal Premiums by Channel Figure-4: PICC Life’s Individual Agent Sales Expansion


Life new business value achieved 37.7% YoY growth with margin improvement. Although FYP declined 12.4% in 2017,

life NBV increased 37.7% to RMB5,687 mn on the grounds of life new business margin (NBM) improvement. FYP based NBM

improved 2.6 ppts to 7.3% in 2017 as high-margin regular premiums and individual agent channel premiums increased.

59 53

46 44 42

36 43 56 72

91

10 11

11

11

11

105 106

114

127

145

17.3%

1.1%

7.4%

11.7%

13.4%

0%

4%

8%

12%

16%

20%

0

30

60

90

120

150

2016A 2017A 2018F 2019F 2020F

(RMB bn)

Bancassurance Individual

Group Total GWP YoY

6.2 6.0 5.7 5.5 5.2

9.7

14.1

16.9

19.4

22.3

0

5

10

15

20

25

2016A 2017A 2018F 2019F 2020F

(RMB Bn)


3.4 8.4

11.9 15.0 17.4

9.3

16.4

28.8

43.2

59.7

0

10

20

30

40

50

60

70

2016A 2017A 2018F 2019F 2020F

(RMB Bn)


142 156

189 213

256

10.1%

21.4%

12.6%

20.1%

0%

5%

10%

15%

20%

25%

0

50

100

150

200

250

300

2015A 1H16 2016A 1H17 2017A

(thousands)

Headcount HoH

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However, life embedded value only recorded 7.6% YoY, dragged down by loss in assumption change. With low-margin single

premiums shrinking and high-margin individual regular premiums expanding, we believe that there’s still room for life NBM

improvement. Therefore, we estimate increase of 2.2 ppt/2.0 ppt/1.5 ppt in 2018F/2019F/2020F NBM. The increase in NBM

should offset some negative impacts from declining FYP. Thus, life NBV should maintain expansion above 10% in

2018F-2020F. Meanwhile, life embedded value should be back to stable growth supported by healthy life NBV expansion.

Figure-5: PICC Life’s NBM (Based on FYP) Figure-6: PICC Life’s NBV Growth


Total investment yield increased 0.1 ppt to 5.9% in 2017, while tax rate hiked to 25.2% due to a surge in motor

insurance underwriting expense. Total investment assets increased 5.7% to RMB853 bn in 2017. Broken down by

investment product, fixed income assets increased by 8.2%, whereas equity investment funds decreased 42.5%. The decline in

investment funds could be related to the 1.91x increase in realised profit of fund and equity securities investments. Tax rate hurt

profit growth in 2017, which increased to 25.2% in 2017 from 18.3% in 2016. Therefore, shareholders’ profit of PICC Group only

grew 13.0% in 2017 on the base of 21.8% profit before tax growth. The hike in tax rate was due to rebates of certain deductible

P&C underwriting expense, of which the proportion of underwriting expense exceeding certain percentage will not be deducted.

Although the management said that negotiations have been launched between the industry and regulators, we expect the high

tax rate to remain as the only immediate effective measure is to increase tax-free business, such as agriculture insurance and

health insurance.

Earnings Revisions and Valuation

Net earned premiums and shareholders’ profit have been raised, but high tax rate is still expected to have effects.

Considering premium growth potential of PICC P&C as well as correction to pessimistic PICC Life premium forecasts, we

revise up the net earned premiums forecasts for 2018F/2019F by 7.9% and 10.1%, respectively. The 2018F/2019F item of total

benefits, claims and expenses has only been raised 5.5%/8.0%, respectively, due to expected reduced life insurance contract

liability accrued. The tax rate should remain high in the short term, but is expected to decline slightly. Thus, shareholders’ profit

will be continuously affected by high tax rates, which have been revised up by 6.6%/10.2% in 2018F/2019F.

Table-3: Earnings Forecasts

New

Old Change

(RMB mn) 2018F 2019F 2020F 2018F 2019F 2018F 2019F

Net earned premiums 472,755 518,083 563,628 438,306 470,756 7.9% 10.1%

Total investment income 55,504 59,303 64,011 55,255 59,570 0.5% (0.4%)

Total benefits, claims and expenses 504,162 550,518 598,139 477,719 509,890 5.5% 8.0%

Profit before tax 38,208 41,892 45,418 34,614 39,239 10.4% 6.8%

Shareholders' profit 20,073 22,341 24,244 18,835 20,271 6.6% 10.2%

EPS basic (RMB) 0.47 0.53 0.57 0.44 0.48 6.6% 10.2%

Source: Guotai Junan International.

4.6%

7.3%

9.5%

11.5%

13.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2015A 2016A 2017A 2018F 2019F

4,131

5,687

6,626

7,518

8,291 37.7%

16.5%

13.5%

10.3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2016A 2017A 2018F 2019F 2020F

(RMB mn)

Life NBV YoY

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We lower PICC Group’s target price to HK$4.15, but maintain the investment rating of "Accumulate". We employ

sum-of-the-parts (SOTP) valuation to derive the target price for PICC Group. For PICC Life, we apply 6.0x NBV multiple with an

assumed COE of 16.1%. PICC P&C’s targeted P/B is 1.37x as we discussed in our previous report for PICC P&C. The discount

on valuation has been raised due to slight pessimistic investment sentiment on insurance sector. Therefore, we derive our

target price HK$4.15 after imposing a 42.0% discount. We maintain "Accumulate" rating because 1/ P&C business is expected

to support the Group’s business expansion, 2/ A-share listing is still the major catalyst in 2018-2019, and 3/ PICC Group’s

valuation is cheap among listed insurance groups/holding companies.

Table-4: SOTP Valuation of PICC Group (RMB mn) 2018F 2018F

PICC P&C

PICC Life

Net assets 150,882

Embedded value 67,865

Target P/B 1.37 x

1 year new business value 6,626

Valuation 206,642

NBV multiple 6.0 x

PICC Group's holdings 69.0%

Total NBV 39,771

Valuation 107,636


PICC Health

Others

Net assets 5,306

Net assets 11,036

Target P/B 1.20 x

Target P/B 1.00 x

Valuation 6,368

Valuation 11,036



Value attributable to PICC Group

SOTP valuation

PICC P&C 142,542

Total value 245,765

PICC Life 86,109

Shares in issue 42,424

PICC Health 6,078

Value per share (RMB) 5.79

Asset management and others 11,036

Forex assumption 0.81

Value per share (in HK$) 7.15

Source: Guotai Junan International.

Figure-7: PICC Group’s Forward P/B Figure-8: PICC Group’s Historical P/B

Source: Bloomberg, Guotai Junan International. Source: Bloomberg, Guotai Junan International.

1.15

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Ma

y-1

3

Au

g-1

3

No

v-1

3

Fe

b-1

4

Ma

y-1

4

Au

g-1

4

No

v-1

4

Fe

b-1

5

Ma

y-1

5

Au

g-1

5

No

v-1

5

Fe

b-1

6

Ma

y-1

6

Au

g-1

6

No

v-1

6

Fe

b-1

7

Ma

y-1

7

Au

g-1

7

No

v-1

7

Fe

b-1

8

Ma

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8

(x)

Forward P/B Avg. Since May 2013

+1 S.D. -1 S.D.

1.30

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

Ma

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Aug

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v-1

3

Fe

b-1

4

Ma

y-1

4

Aug

-14

No

v-1

4

Fe

b-1

5

Ma

y-1

5

Aug

-15

Nov

-15

Fe

b-1

6

Ma

y-1

6

Aug

-16

No

v-1

6

Fe

b-1

7

Ma

y-1

7

Aug

-17

No

v-1

7

Fe

b-1

8

Ma

y-1

8

(x)

Historical P/B Avg. Since May 2013

+1 S.D. -1 S.D.

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Table-5: Peers Comparison

Company Stock Code Currency Last price PE (fiscal year) PB (fiscal year) ROE(%) D/Y(%) Mkt Cap

(in local $) 17A 18F 19F 20F 17A 18F 19F 20F 18F 18F HK$ mn

HK - Listed companies

People's Insurance Co Grou-H 01339 HK HK$ 3.81

8.7 7.3 6.8 6.3

1.0 0.8 0.7 0.6

11.3

1.0 161,635

Manulife Financial Corp 00945 HK HK$ 150.80

25.6 9.5 8.7 8.2

1.3 1.2 1.1 1.0

12.7

3.8 299,058

China Taiping Insurance Hold 00966 HK HK$ 29.15

17.8 13.4 11.2 9.3

1.7 1.4 1.2 1.1

11.2

0.5 104,766

AIA Group Ltd 01299 HK HK$ 74.35

18.7 20.0 17.8 15.9

2.7 2.5 2.3 2.1

13.1

1.6 897,863

New China Life Insurance C-H 01336 HK HK$ 39.00

19.5 11.9 10.1 9.1

1.6 1.4 1.2 1.1

10.5

2.0 160,306

China Reinsurance Group Co-H 01508 HK HK$ 1.74

12.6 9.5 8.2 7.3

0.8 0.8 0.7 0.6

7.9

3.8 73,336

Ping An Insurance Group Co-H 02318 HK HK$ 79.20

13.7 11.8 9.9 8.3

2.5 2.1 1.8 1.5

19.5

2.6 1,450,046

PICC Property & Casualty-H 02328 HK HK$ 14.78

9.6 7.8 7.2 6.4

1.4 1.2 1.0 0.9

15.7

3.2 219,165

Prudential Plc 02378 HK HK$ 205.80

22.0 13.2 11.9 10.8

3.1 2.8 2.6 2.2

20.4

2.6 533,384

China Pacific Insurance Gr-H 02601 HK HK$ 37.00

19.8 13.5 11.5 10.2

2.0 1.8 1.6 1.4

13.7

3.4 384,379

China Life Insurance Co-H 02628 HK HK$ 22.70

17.4 12.3 10.5 9.2

1.7 1.4 1.3 1.2

12.1

2.8 822,854

Zhongan Online P&C Insuran-H 06060 HK HK$ 54.70

n.a. 331.5 63.5 28.2

3.9 3.6 3.3 2.8

0.6

0.0 80,399

Simple Average 16.9 38.5 14.8 10.8 2.0 1.7 1.6 1.4 12.4 2.3

Weighted Average 17.1 18.1 12.2 10.4 2.2 2.0 1.8 1.5 15.2 2.5

China - Listed companies

Ping An Insurance Group Co-A 601318 CH CNY 64.10

12.8 11.4 9.5 7.7

2.5 2.1 1.8 1.5

19.7

2.5 1,450,055

New China Life Insurance C-A 601336 CH CNY 46.44

26.8 18.5 15.2 13.2

2.3 2.1 1.9 1.7

12.0

1.3 160,307

China Pacific Insurance Gr-A 601601 CH CNY 36.17

22.3 16.7 13.8 11.6

2.4 2.1 1.9 1.7

14.2

2.9 384,382

China Life Insurance Co-A 601628 CH CNY 25.35

22.4 17.2 14.4 12.8

2.2 2.0 1.8 1.7

12.4

2.0 822,859

Simple Average 21.1 15.9 13.2 11.3 2.3 2.1 1.9 1.7 14.6 2.2


Other APAC - Listed companies

Samsung Fire & Marine Ins 000810 KS

KS

KRW 268,500.00

11.8 11.1 10.1 8.7

0.9 1.0 0.9 0.9

8.5

4.0 93,403

Db Insurance Co Ltd 005830 KS

KS KS

KRW 61,500.00

5.9 6.6 6.1 5.7

0.8 0.8 0.8 0.7

13.3

3.9 31,973

Samsung Life Insurance Co Lt 032830 KS

KS KS

KRW 114,500.00

17.6 13.5 12.5 12.0

0.7 0.7 0.6 0.6

5.0

2.2 168,153

Hanwha Life Insurance Co Ltd 088350 KS

KS

KRW 6,160.00

8.1 7.7 7.0 5.3

0.5 0.5 0.5 0.4

6.5

2.6 39,286

Cathay Financial Holding Co 2882 TT TWD 55.00

12.3 11.4 11.0 10.1

1.2 1.2 1.1 1.1

9.9

4.1 182,249

Shin Kong Financial Holding 2888 TT TWD 12.25

11.7 7.3 9.6 8.6

0.9 0.8 0.7 0.7

12.3

2.2 33,089

Ms&Ad Insurance Group Holdin 8725 JT JPY 3,760.00

10.7 14.7 9.4 8.9

0.8 0.8 0.7 0.7

5.2

3.5 159,892

Dai-Ichi Life Holdings Inc 8750 JT JPY 2,148.00

10.9 7.9 11.1 10.4

0.8 0.7 0.7 0.6

8.5

2.2 184,446

Tokio Marine Holdings Inc 8766 JT JPY 5,305.00

14.6 14.5 12.6 12.0

1.1 1.0 1.0 0.9

7.3

3.0 284,428

Amp Ltd AMP AU AUD 3.85

13.1 11.4 11.0 10.7

1.5 1.6 1.6 1.5

13.8

7.5 65,842

Great Eastern Holdings Ltd GE SP SGD 30.80

12.6 17.8 17.0 16.0

1.9 n.a. n.a. n.a.

n.a.

2.0 84,191

Qbe Insurance Group Ltd QBE AU AUD 10.31

n.a. 14.2 11.8 10.9

1.2 1.2 1.2 1.1

8.0

4.6 82,958

Simple Average 11.8 11.5 10.8 9.9 1.0 0.9 0.9 0.9 8.9 3.5


USA - Listed companies

Aflac Inc AFL US USD 45.23

7.8 11.4 10.9 10.3

1.4 1.4 1.3 1.2

12.5

2.3 274,869

American International Group AIG US USD 52.85

n.a. 10.8 9.4 8.5

0.7 0.7 0.7 0.6

7.0

2.5 372,419

Allstate Corp ALL US USD 96.38

11.4 10.8 10.9 10.4

1.6 1.5 1.4 1.3

14.4

1.8 265,927

Aon Plc AON US USD 144.09

30.4 17.9 15.7 14.2

7.8 7.9 6.9 6.4

36.3

1.1 276,566

Chubb Ltd CB US USD 136.17

16.5 13.0 12.0 11.3

1.2 1.2 1.1 1.0

9.3

2.2 497,906

Hartford Financial Svcs Grp HIG US USD 52.56

n.a. 11.5 10.6 9.6

1.4 1.4 1.3 1.3

12.1

2.0 147,765

Loews Corp L US USD 51.69

14.9 15.0 13.6 14.8

0.9 n.a. n.a. n.a.

n.a.

0.5 129,569

Lincoln National Corp LNC US USD 68.01

7.3 8.1 7.4 6.6

0.9 0.9 0.8 0.7

12.4

2.0 116,761

Metlife Inc MET US USD 46.77

12.8 9.2 8.6 7.9

0.9 0.9 0.9 0.7

10.3

3.6 373,209

Marsh & Mclennan Cos MMC US USD 81.57

28.0 18.8 17.0 15.5

5.6 4.6 3.8 n.a.

27.8

1.9 324,886

Principal Financial Group PFG US USD 59.03

7.4 10.4 9.7 9.1

1.3 1.3 1.2 1.1

13.0

3.6 132,706

Progressive Corp PGR US USD 62.43

22.8 16.0 15.7 15.2

3.9 3.3 2.9 2.6

22.3

1.9 285,405

Prudential Financial Inc PRU US USD 99.88

5.5 8.2 7.7 7.3

0.8 0.9 0.8 0.7

11.3

3.5 329,300

Travelers Cos Inc/The TRV US USD 131.25

17.8 12.6 11.6 11.2

1.5 1.5 1.4 1.3

11.9

2.3 278,450

Simple Average 15.2 12.4 11.5 10.9 2.1 2.1 1.9 1.6 15.4 2.2


Europe - Listed companies

Aviva Plc AV/ LN GBp 542.60

15.5 9.6 8.9 8.5

1.3 1.3 1.2 1.2

12.7

5.5 232,192

Legal & General Group Plc LGEN LN GBp 279.50

8.8 10.1 9.5 9.4

2.1 1.7 1.5 1.7

19.2

5.9 176,541

Old Mutual Plc OML LN GBp 259.70

13.5 11.6 11.2 9.9

1.6 1.5 1.4 1.6

9.8

3.1 135,941

Prudential Plc PRU LN GBp 1,929.00

20.7 13.2 11.9 10.8

3.1 2.8 2.6 2.2

20.4

2.6 529,441

Standard Life Aberdeen Plc SLA LN GBp 370.80

12.4 12.9 12.7 11.9

1.3 2.5 2.5 1.2

10.2

6.1 116,928

Axa Sa CS FP EUR 22.50

9.0 8.6 8.1 8.0

0.8 0.8 0.7 0.7

8.6

5.9 511,940

Swiss Re Ag SREN SW CHF 95.14

93.8 10.9 9.8 9.3

0.9 0.9 0.9 0.9

8.2

5.6 259,624

Zurich Insurance Group Ag ZURN SW CHF 317.30

16.1 12.8 11.1 10.5

1.5 1.5 1.4 1.4

11.6

6.1 374,057

Simple Average 23.7 11.2 10.4 9.8 1.6 1.6 1.5 1.3 12.6 5.1


Source: Bloomberg, Guotai Junan International. Prices as at May 14, 2018.

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Financial Statements and Ratios

[Table_CompanyRatingDefinition]

[Table_IncomeStatement] Income Statement

Year end 31 Dec (RMB mn) 2016A 2017A 2018F 2019F 2020F

Net earned premiums 396,870 434,977 472,755 518,083 563,628

Reinsurance commission income 10,519 8,803 10,369 11,315 12,127

Investment income 32,253 32,650 38,396 41,181 44,250

Net realised gains and FV gains 822 3,826 2,850 2,438 2,509

Other income 2,859 3,519 3,741 3,709 3,790

Total revenue 443,323 483,775 528,112 576,726 626,304

Insurance benefits and claims expenses (301,753) (318,841) (343,870) (377,258) (412,052)

Costs and other expenses (126,637) (145,979) (160,292) (173,261) (186,086)

Total benefits, claims and expenses (428,390) (464,820) (504,162) (550,518) (598,139)

Share of profit of associates 10,386 12,674 14,258 15,684 17,252

Profit before tax 25,319 30,831 38,208 41,892 45,418

Income tax (4,638) (7,780) (9,466) (9,903) (10,704)

Profit after tax 20,681 23,051 28,742 31,989 34,714

Non-controlling interest 6,436 6,952 8,668 9,648 10,469

Shareholders' profit / loss 14,245 16,099 20,073 22,341 24,244

Basic EPS (RMB) 0.336 0.379 0.473 0.527 0.571

Diluted EPS (RMB) 0.336 0.379 0.473 0.527 0.571

[Table_CashFlowStatement] Cash Flow Statement


Operating activities

Profit before tax 25,319 30,831 38,208 41,892 45,418

Investment income (33,075) (36,476) (41,246) (43,619) (46,759)

Share of profits of associates (10,386) (12,674) (14,258) (15,684) (17,252)

Depreciation & amortisation 2,287 2,255 2,724 2,789 2,834

Increase in other liabilities and accruals 26,350 21,311 20,527 18,921 17,683

Increase in other liabilities and accruals 22,999 (494) 18,790 23,217 26,034

Impairments 408 445 650 678 743

Others (10,071) (8,021) (6,898) (5,425) (8,515)

Cash from operating activities 23,831 (2,823) 18,497 22,768 20,185

Investing activities

Interest income received 28,356 28,721 33,944 36,560 39,311

Dividend income received 6,865 6,016 8,142 8,634 9,317

Net change in investment properties (120,959) (29,013) (57,773) (50,915) (51,319)

Capital expenditures (3,621) (3,125) (3,839) (3,923) (3,978)

Others 56,676 20,671 (2,206) (3,840) (3,319)

Cash from investing activities (32,683) 23,270 (21,731) (13,483) (9,988)

Financing activities

Proceeds from rights issue 12 29 0 0 0

Proceeds from issue of subdebts 15,000 3,500 12,000 0 0

Interest paid (2,887) (3,763) (5,083) (5,095) (5,107)

Dividends paid (2,533) (2,885) (3,034) (3,377) (3,664)

Others (4,145) 8,160 4,135 2,735 2,434

Cash from financing activities 5,447 5,041 8,018 (5,737) (6,338)

Net changes in cash (3,405) 25,488 4,783 3,548 3,859

Cash at beg of year 49,884 46,729 72,819 77,502 80,951

Exchange rate changes 250 (196) (100) (100) (100)

Cash at end of year 46,729 72,819 77,502 80,951 84,710


[Table_BalanceSheet] Balance Sheet


Cash & cash equivalents 46,729 72,819 77,502 80,951 84,710

Term deposits 91,884 70,706 72,303 74,957 77,052

Bonds securities 409,309 470,976 531,954 588,272 642,924

Equity securities 150,550 115,013 127,725 140,398 155,284

Other investment assets 10,695 12,155 12,798 12,358 12,235

Total investment assets 709,167 741,669 822,282 896,934 972,205

Other assets 222,982 246,237 259,747 284,226 311,602

Total assets 932,149 987,906 1,082,028 1,181,160 1,283,807

Insurance contracts liabilities 538,513 557,011 579,819 598,739 610,528

Investment contracts liabilities 38,370 45,880 45,296 49,333 54,495

Interest-bearing payables 46,084 49,801 63,542 63,692 63,842

Other liabilities 138,188 148,333 184,460 235,567 294,253

Total liabilities 761,155 801,025 873,117 947,332 1,023,119

Total shareholders' equity 126,101 137,533 153,929 172,575 192,630

Minority interest 44,893 49,348 54,982 61,253 68,058

Total equity 170,994 186,881 208,911 233,828 260,688

[Table_FinancialRatio] Financial Ratios

(RMB mn) 2016A 2017A 2018F 2019F 2020F

Insurance operation

Life GWP (before elimination) 105,115 106,238 114,109 127,466 144,508

Life GWP YoY 17.3% 1.1% 7.4% 11.7% 13.4%

Life FYP 89,531 78,435 69,752 65,371 63,779

Life FYP YoY 14.6% (12.4%) (11.1%) (6.3%) (2.4%)

Investments

Net investment income YoY (0.5%) 1.2% 17.6% 7.3% 7.5%

Investment assets YoY 4.9% 4.6% 10.9% 9.1% 8.4%

Embedded value

Life insurance EV 57,558 61,909 67,865 75,015 83,332

Life insurance EV YoY 8.5% 7.6% 9.6% 10.5% 11.1%

Life insurance NBV 4,131 5,687 6,626 7,518 8,291

Life insurance NBV YoY 53.1% 37.7% 16.5% 13.5% 10.3%

New business margin (FYP) 4.6% 7.3% 9.5% 11.5% 13.0%

New business margin (APE) 17.4% 21.5% 23.8% 25.5% 26.2%

Profitability

ROAE 11.8% 12.2% 13.8% 13.7% 13.3%

ROAA 1.6% 1.7% 1.9% 2.0% 2.0%

Per share data (RMB)

Life EV per share 1.357 1.459 1.600 1.768 1.964

Life NBV per share 0.097 0.134 0.156 0.177 0.195

Basic EPS 0.336 0.379 0.473 0.527 0.571

BPS 2.972 3.242 3.628 4.068 4.541

DPS 0.034 0.038 0.047 0.053 0.057

Dividend payout ratio 10.1% 10.1% 10.0% 10.0% 10.0%

Valuation metrics

Current P/BPS (x) 1.1 1.0 0.9 0.8 0.7

Current P/ EV (x) 2.5 2.2 1.9 1.7 1.6

TP P/BPS (x) 1.2 1.1 0.9 0.8 0.7

TP P/ EV (x) 2.7 2.4 2.1 1.9 1.7

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Company Rating Definition

The Benchmark: Hong Kong Hang Seng Index

Time Horizon: 6 to 18 months

Rating Definition

Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable.

Accumulate 收集 Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable.

Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral.

Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable.

Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable.

[Table_IndustryRatingDefinition] Sector Rating Definition

The Benchmark: Hong Kong Hang Seng Index

Time Horizon: 6 to 18 months

Rating Definition

Outperform 跑赢大市 Relative Performance>5%; or the fundamental outlook of the sector is favorable.

Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral.

Underperform 跑输大市 Relative Performance<-5%; Or the fundamental outlook of the sector is unfavorable.

[Table_DISCLOSUREOFINTERESTS] DISCLOSURE OF INTERESTS

(1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for GREENLAND BROAD (01253 HK),KAISA GROUP (01638 HK),GUOTAI JUNAN I (01788 HK),BINHAI INVESTMENT (02886

HK),GFI MSCI A I (03156 HK),CAM SCSMALLCAP (03157 HK),ZHENRO PPT (06158 HK),LINK HOLDINGS (08237 HK),GFI MSCI A I-R (CNY) (83156 HK),Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report.

(4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months.

(5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research Report.

(6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies.

DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction. © 2018 Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen’s Road Central, Hong Kong. Tel.: (852) 2509-9118 Fax: (852) 2509-7793 Website: www.gtja.com.hk

Documents

Life NBV [Table S Should Continue Fast Growth, Maintain ...also contributed in offsetting declining bancassurance premiums. Life NBM improved 2.6 ppts to 7.3%, which fueled a 37.7%