Photographer: Brent Lewin/Bloomberg

Analysts Like This China Insurer, and It Just Got Cheaper

Updated on
  • China Taiping stands out for low valuation, growth prospects
  • Firm’s agency sales force has expanded faster than its peers

As an insatiable demand from China’s middle class for insurance drives a boom in insurers’ shares, analysts say one company is emerging as a safer bet -- and just got cheaper in this week’s stock rout.

China Taiping Insurance Holdings Co.’s industry-leading prospects and low valuation prompted Morgan Stanley and Credit Suisse Group AG to raise target prices this year. China International Capital Corp. recommended the stock last week as a top insurance pick.

Even after global equities plunged, sending Taiping tumbling, the firm’s shares have rallied 62 percent in the past year. Taiping shares have plunged 11 percent this week.

The Hong Kong-based Taiping uses the most conservative investment-return assumptions among peers for its reserves -- leaving more room for the firm to boost profits this year as bond yields surge, analysts say. The company, which aims to be a “boutique” insurer focused on mid- to high-end clients in the mainland, is also ahead of the pack in ramping up its agency sales force to power growth, they say. But Taiping’s valuation seems yet to reflect its prospects.

Poised to Beat Industry Giants

Taiping's shares forecast to make bigger gains

Source: CICC price targets for insurers' Hong Kong-traded shares, based on Jan. 29 prices

“We like Taiping’s rapid new business value growth and agency expansion,” analyst Leon Qi, of Daiwa Capital Markets in Hong Kong, said by email, making the case for buying the stock to ride the insurance wave.

Three key metrics:

  • Taiping has traded at about 0.6 times estimated 2018 embedded value, compared with a sector average of more than 1 time and Ping An Insurance(Group) Co.’s 1.4 times, according to Daiwa calculations last month.
  • The firm will post a 32 percent profit increase this year, 10 percentage points higher than the average for eight listed Chinese insurers, according to consensus analyst estimates tracked by Bloomberg.
  • Credit Suisse sees Taiping boosting its agency force faster than any of its peers this year, after already being set to hit 500,000 in 2017.

No. 2 for Profit Growth

Source: Bloomberg calculations from analysts' consensus estimates

Note: ZhongAn Online P&C not included because of forecast 2017 loss

The near-record-low valuation of Chinese insurers listed in Hong Kong fails to reflect their growth prospects and provides a “perfect” time to buy, according to CICC.

Read more: Bloomberg Intelligence on Chinese Insurers’ Valuations

Not everybody is as optimistic. CLSA Ltd. sees investors’ demand for wealth management products eating into life insurers’ sales and has also expressed reservations about Taiping’s aggressive agency expansion.

For its part, Taiping expressed confidence in its investment performance for the second half of last year, said it wanted to take revenue and net income to a “new level” by the end of 2020, and pledged “stable and sustainable” dividends, in an emailed response to questions from Bloomberg.

— With assistance by Dingmin Zhang

    Before it's here, it's on the Bloomberg Terminal.