PICC Group’s Life Insurance Business Continued to Restructure, P&C Insurance Outperformed

We modestly increased our fair value estimate for no-moat PICC Group to HKD 4 from HKD 3.70 per share, to reflect our increased valuation for its flagship P&C insurance arm, PICC P&C’s by 20%. Our new valuation implies forward price to book ratio of 0.8 times, for P&C insurance, and 0.4 times respectively for the life insurance and health insurance business. These segments accounted for 73%, 18% and 2% of total the group’s shareholders’ equity in 2020. The stock is undervalued and trading at 0.4 times forward price to book. We believe current low sentiment for the H shares is attributable to the deteriorating margin of the property and casualty insurance business and lack of visibility of long-term growth in the life insurance business. However, we believe the life insurance business structure is improving from a low base and its weak fundamentals are factored into our valuation. We expect the ongoing auto reform is expected to weed out weaker players and speed up industry consolidation. PICC’s P&C business should benefit from such trends, in our view. The company has a strong scale advantage to achieve lower-cost operations and better risk pricing, given its long operating history and huge customer base.