Hong Kong/China Insurance:Anticipated Strong Earnings Growth; Operating Trends Remain Key to Rerating

Rising 1H profits largely due to strong A shares and low base last year.

    Both CPIC and Ping An have announced positive profit alerts recently, statingthat their 1H net profit would increase by 63% and 62% y-y, respectively, likelyhelped by improving strong equity market as well as low base, in our view. Wenote both companies recognised material impairment losses over 1H last year(Exhibit 1). According to CIRC, industry earnings grew 218% y-y to Rmb180bnover the period of January to May 2015 and we would not be surprised to seemore strong earnings announcements from other insurers.

    Maintaining our FY earnings forecasts. We already expect insurers tobenefit from A share gains in our current estimates. Our FY15e EPS forecasts(24% growth for Ping An and 34% for CPIC) imply roughly flat earningsgrowth for 2H, based on their newly guided 1H numbers. We are not makingfurther upward revisions at this point, particularly given the uncertain outlookon A shares vs the strong performance in 2H last year (Exhibit 2).

    VNB growth, mix improvement and CoR trends still key share pricedrivers. Strong earnings are somewhat expected in our view and we think keyinvestor focus will remain on insurers' operating trends. Year to date, we notethe sales momentum has been one of the strongest in both life (grosspremium incomes +17%) and P&C (+19%) for Ping An and the companycould continue to lead peers on growth and profitability, in our view.