-According to 2014 interim results, as at the end of June, PICC¡¦s premium income increased strongly, total premium and net written premium increased by 29.1% and 32.6% to RMB204.544 billion and RMB169.186 billion respectively. Total premiums of P&C insurance and life insurance reached to RMB132.162 billion and RMB58.375 billion, up 14.2% and 54.7% respectively, with the sharp growth of life insurance business. Net profits attributable to the shareholders of parent decreased by 12.3% to RMB6.614 billion due to the large growth of operating expenses;

-Total assets of PICC increased stably by 7.29% to RMB810.36 billion compared with the end of 2013, and net assets amounted to RMB80.24 billion, up 12.11%. Equivalent to the BVPS of RMB1.89, but net assets was still obvious lower than other large insurers;

-PICC¡¦s capital pressure declined due to the large increase of capital after the IPO in H Shares. As at the end of 1H2014, the Group¡¦s solvency margin ratios of P&C insurance and life insurance increased by 1ppts and 19ppts to 181% and 221% respectively compared with the end of 2013;

-However, PICC¡¦s investment returns decreased. As at the end of June, the Group¡¦s investment returns dropped 7.78% to RMB14.145 billion. The returns from P&C insurance decreased by 16.6% from RMB6.055 billion in 1H2013 to RMB5.048 billion. The returns of life insurance dropped 3.3% y-y to RMB7.926 billoin. This is mainly because of the high base from the accounting changes of returns in Industrial Bank during the period. We believe the growth of investment gains will go up in 2H due to the improvement of market environment this year, and maintain on 5% approximately in 2014;

-In all, the performance of PICC met our expectation, and We forecast the EV of PICC health and life insurance would be RMB0.08 and 1.35 in 2015 respectively, and considering other businesses, such as P&C, based on the SOPT, we estimate PICC¡¦s intrinsic value should be around HK$4.30 in 2015, and maintain its 12-m TP to HK$4.09 considering the volatility in the markets recently, 5% discount of the intrinsic value and around 22.1% higher than the latest closing price, equivalent to 13.8P/E and 1.5P/B in 2015 respectively. Maintain Buy.

How we view this

The business scale of PICC increased sharply in recent years, especially for the profit growth. However, according to the Group¡¦s current business structure, the subsidiary in HK, PICC P&C took the large portion of its total profit, which makes the Group hang too much upon the development of its P&C insurance, therefore the Group started to increase the proportion of life insurance. By the end of June, market shares of P&C and life insurance increased by 0.1ppts and 0.6ppts to 34.5% and 7.6% respectively compared with the end of 2013. Life insurance business has increased rapidly since this year, and we expect its market share will go up obviously.

Investment Action

In all, PICC¡¦s performance maintains stable, and net profit will increase although it declined in 1H, and based on the SOPT, we maintain its 12-m TP to HK$4.09, 5% discount of the intrinsic value and around 22.1% higher than the latest closing price, equivalent to 13.8P/E and 1.5P/B in 2015 respectively. Maintain Buy.

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