PICC Group released 1H19 results on 23 Aug. Despite lackluster P&C underwriting performance, PICC Life and PICC Health progressed well. The Group achieved 12.8% YoY growth in GWP to RMB 322.9bn (P&C +15.1% to RMB 236bn; Life +1.3% to RMB 70.8bn; Health +43.8% to RMB 15.2bn). Net profit increased 50.7% YoY to RMB 21.6bn, driven by better equity investment and tax impact. The Company recorded tax credit of RMB 2.31bn, vs. tax expense of RMB 5.06bn in 1H18, thanks to implementation of new tax deduction policies resulting in RMB 4.71bn tax savings.
- Result highlights. 1) Equity investment gains. Realized gains and fair value gains amounted to RMB 2,529mn, vs. net loss of RMB 415mn in 1H18, mainly due to better investment returns on equity securities, mutual funds and trust schemes. 2) NBV of PICC Life increased with margin improvement. NBV of PICC Life increased 25.6% YoY to RMB 3,853mn, primarily driven by individual agent channel, which increased 33.3% YoY to RMB 3,393mn. Calculated APE based NBV margin rose 2.3ppt to 22.3%, of which agent channel margin rose 4.5ppt to 39.2%. 3) Channel optimization of PICC Life. GWP from individual agent channel increased 34% YoY, representing 44% of Life GWP, up 11ppt YoY. Regular premiums across all channels increased 21% YoY, representing 37% of Life FYP, up 9ppt YoY.
- Result negatives. 1) P&C underwriting margin shrank. Combined ratio rose 1.7ppt YoY to 97.6%. Loss ratio rose 3.6ppt. Due to impacts of natural disasters such as windstorm and rainstorm and epidemics such as African swine fever, loss ratio of agriculture insurance rose 13.1ppt YoY to 75.9%. Expense ratio improved 2.0ppt YoY, of which expense ratio of motor vehicle insurance improved 6ppt to 36.5%. 2) Deceleration of motor insurance in light of slowdown of car sale and deregulation of premium rate of commercial motor insurance.
- Valuation. We adjust 2019E GWP slightly up by 1.1%, and adjust 2019E net profit up by 71.9% to reflect better equity investment and tax credit. We value the Group’s P&C at 1.2x 2019E P/B, its Life and Health business at industry average, which is 0.5x 2019E P/EV, and its other businesses at 1.0x 2019E P/B. Lift TP to HK$ 4.33. Maintain BUY.
