China Life Insurance Sector:Correction Overdone;Current Valuation Reflects Overly Bearish Assumption for Long-term Investment Yield

类别:行业研究 机构:中国银河国际金融控股有限公司 研究员:中国银河国际研究所 日期:2016-01-25

Share prices dropped ~20% within a month due to the A-share market correction: As a result of weak A-share market, share prices of four major life insurance companies under our coverage dropped around 20% during the past month. We believe the major concern from mar-ket should be on insurers’ investment return as other key factors were largely unchanged during the period. We admit that the market correction may bring negative impact on insurers’ short-term investment performance, but the current valuations imply an overly bearish view on the long -term investment return of major life insurance companies according to our test.

    Methodology of our sensitivity test: Since the major factors (including those about premium growth, mortality, morbidity, lapse rates, maintenance expenses, claims and etc.) should have no major changes within a month, we believe the concern is mainly on insurers’ investment return. We assume all factors remain constant except the investment return rate. We also collect the data of adjusted net worth (ANW), value of in-force business (VIF), impact on VIF if investment return drops 10% directly from insurers annual and interim reports. First, we use A=1-(Current P/ EV /Average P/EV during Past 5 Years) to calculate the current valuation discount applied by the market. Second, we use B= - “Impact on VIF if investment return drops 10%” * “VIF”/”EV” to cal-culate what will happen on EV if investment return drops 10%. Third, we use C=A/B*(10%) to get what the discount is assumed under current embedded value (EV). Finally, we use (1-C)* ”Long-term assuming investment yield according to company’s own assumption” to calculate the im-plied long-term investment yield set by the market according to current valuation. Thus, the over-all formula is: Current market view on investment yield base on current EV = (1-(1-”Current P/ EV” / “Average P/EV”)/ (- “Impact on VIF if investment return drops 10%” * “VIF”/”EV” )*10%)* ”Long-term assuming investment yield according to company’s own assumption”. Please note that there are limitations in this test as we are assuming the impact from investment return drops on embedded value will be linear but that is undoubtedly not. And we also ignore the correlation between investment return and other factors.

    The results shows market is expecting the long-term investment return rate will be around or less than 2.5%, we think market’s view is too bearish: According to our calculation, the market’s view on insurers long-term investment is quite low. Especially for Ping An [2318.HK] and Taiping [0966.HK], the current P/EV implies that the long-term investment return will be less than 1%, we admit that the extreme case may be possible for short-term if both equity market and bond market collapse at the same time but it is very unlikely to be a long-term phenomenon. Thus we believe these four major life insurance companies are undervalued.

    We maintain our positive view on the sector; Top pick is still Ping An: As we mentioned before, insurance premium growth remained high for Jan-Nov 2015 at 19.67% YoY. Looking forward, we believe the high growth outlook remain intact as 1) penetration rate and density rate are still low; 2) policy goals for 2020 are very encouraging; 3) awareness of insurance will in-crease. Besides, we believe potential implementation of C-ROSS in Q1 2016 and tax-deferred policies for commercial pension will be catalysts. We maintain our positive view on the sector and those insurance companies within our coverage. Our top pick is still Ping An [2318.HK] because of 1) Integrated finance strategy, cross-selling opportunities continuously arise; 2) Internet fi-nance achieved significant effects of business innovation and steady growth in scale and user base which would become a good distribution channel; 3) Best product structure as more than 90% of total premium income was from individual life insurance agent channel at the end of 1H2015.



龙蟒佰利 买入 -- 研报
华泰证券 中性 -- 研报
中信证券 中性 -- 研报
佩蒂股份 持有 -- 研报
五粮液 中性 -- 研报
元祖股份 中性 -- 研报
桃李面包 中性 -- 研报
绝味食品 中性 -- 研报
海天味业 中性 -- 研报
养元饮品 中性 -- 研报
伊利股份 持有 -- 研报


美凯龙 0 0 研报
中顺洁柔 0.61 0.72 研报
金牌厨柜 0 0 研报
东易日盛 0 0 研报
太阳纸业 0.70 0.36 研报
尚品宅配 0 0 研报
曲美家居 0 0 研报
合兴包装 0.30 0.24 研报
欧派家居 0 0 研报
宜华生活 0.27 0.25 研报
奥瑞金 0 1.19 研报


五粮液 35 持有 中性
贵州茅台 34 持有 中性
万科A 32 买入 中性
中信证券 31 持有 中性
通威股份 28 持有 持有
伊利股份 28 持有 持有
三一重工 27 持有 买入
隆基股份 26 买入 持有
格力电器 26 持有 买入
中信证券 25 持有 中性
华泰证券 25 持有 中性
泸州老窖 25 持有 中性
格力电器 25 持有 买入
保利地产 24 买入 中性
隆基股份 24 买入 持有
中国国航 24 持有 中性
万科A 24 买入 中性


电子信息 486 93 283
建筑建材 431 47 205
钢铁行业 416 30 193
化工行业 400 52 122
金融行业 389 32 146
汽车制造 352 33 188
机械行业 332 47 142
电子器件 298 53 172
家电行业 291 17 150
生物制药 281 48 187
交通运输 275 30 123
酿酒行业 253 17 118
煤炭行业 248 26 121
房地产 242 23 145
电力行业 224 32 95
商业百货 186 31 99
服装鞋类 185 20 102