PICC Group's Third-Quarter Net Profit Growth Accelerates on Improving P&C Insurance Margins

PICC Group’s third-quarter results were solid. Growth in nine-month net profits accelerated to 15% year on year from 6.6% in the first half, while growth in premium income slightly declined to 8.2% for the first three quarters versus 9.4% in the first half. Similar to peers, PICC Life reported lower premium income growth and weaker profitability in the third quarter compared with the first half on weaker investment performance and slower life insurance sales. On the contrary, its flagship business, PICC P&C, reported accelerating growth in premium income and strong improvement in underwriting margins in the quarter. As results were largely in line, we retain our fair value estimate of HKD 4 per share. Our valuation implies a forward price/book ratio of 0.75 times for the property and casualty insurance business and 0.2 times for the life insurance and health insurance businesses. The stock appears undervalued, trading at less than 0.4 times forward book value. There is no change to our long-term positive outlook for the P&C business, thanks to strong scale advantage to achieve lower-cost operations and better risk pricing backed by a long-history operation and deep knowledge of the company's vast customer pool.