Please refer to page 10 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures . HONG KONG 966 HK Outperform Price (at 08:00, 23 Mar 2016 GMT) HK$17.72 Valuation HK$ 48.12 - Sum of Parts 12-month target HK$ 30.00 Upside/Downside % +69.3 12-month TSR % +69.3 Volatility Index High GICS sector Insurance Market cap HK$m 63,686 Market cap US$m 7,945 Free float % 40 30-day avg turnover US$m 20.1 Number shares on issue m 3,594 Investment fundamentals Year end 31 Dec 2015A 2016E 2017E 2018E NEP bn 9.1 10.8 12.0 13.3 Underwriting Result bn -14.9 -18.3 -22.4 -27.4 Investment Income bn 2.4 2.4 2.8 3.2 Life Prem bn 102.3 127.0 152.0 180.7 Life Total Rev bn 126.1 142.2 177.6 213.0 Pretax Life Op Inc bn 8.8 5.7 7.6 9.9 PBT bn 11.0 8.4 10.4 13.0 Reported profit bn 6.3 5.2 6.4 7.9 Net Op Income bn 6.3 5.2 6.4 7.9 EPS adj HK$ 1.95 1.44 1.79 2.21 PER adj x 9.1 12.3 9.9 8.0 DPS HK$ 0.00 0.00 0.00 0.00 Dividend yield % 0.0 0.0 0.0 0.0 Total SH Funds bn 71.8 79.9 88.8 99.8 BV/S HK$ 16.62 18.50 20.84 23.50 ROE % 12.6 8.2 9.1 10.0 ROA % 1.4 1.0 1.0 1.0 P/BV x 1.1 1.0 0.9 0.8 Tot Embedded Val bn 81.9 107.2 127.0 150.0 966 HK rel HSI performance, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, March 2016 (all figures in HKD unless noted) Analyst(s) Scott Russell, FIAA +852 3922 3567 [email protected]Howard Li +852 3922 1497 [email protected]23 March 2016 Macquarie Capital Limited China Taiping Insurance Strong underlying trends undervalued Event Taiping’s FY15 result contains ammunition for both bears and bulls. Bears will focus on weak 2H15 NPAT, large unrepeatable capital gains and higher asset allocation towards debt schemes. By contrast, we prefer to focus on the strong sustainable agent development, substantial margin improvement, stability in running yields and the healthy solvency position, features which we consider more reflective of underlying performance. We reiterate Outperform. Impact Very positive new business trends: VNB rose 48% for FY15 (in line with our expectations) and growth accelerated in 2H. Unlike the 1H15 result (where volumes were strong and margins fell), 2H15 saw margins rise substantially as protection mix improved and premium terms lengthened. Expansion of agent channel. Recruitment accelerated in 2H15 and the company now has 232k agents. This has naturally put pressure on near-term productivity, which we estimate fell 9% in FY15 (refer to page 4). While we expect this may continue in 2016, headcount gains should underpin strong agent sales in 2016; current headcount levels are 35% ahead of the FY15 average. This supports our VNB growth forecast of 27% in FY16. Confident about investment outlook. The market remains concerned about the serviceability of 2.5-4.0% policyholder guarantees as risk-free rates decline. We note Taiping has slightly increased its EV investment return assumption (in year one only) to 5.5%pa. While minor, this suggests to us that the company remains confident about its near-term investment outlook. In any event, this action – and the rising HoH yields in 2H15 – does not support concerns for declining yields. Solid solvency vs unclear asset quality. TP Life reported a solvency ratio 226%, flat in 2H15. Mgmt stated that this rises to 271% under C-ROSS, the new risk-based solvency regime designed to penalise risky behaviour. As such, it would appear that CIRC is not uncomfortable with Taiping’s asset- liability management. In 2H15, the most obvious asset reallocations were to debt schemes (19.3% of total invested assets) and equities (14.4%). NPAT had been preannounced. Nonetheless 2H15 NPAT appears weak, down 77% yoy. The source of the weakness was not clear as the decline in divisional NPAT, capital gains and reserving strains were only modest. Earnings and target price revision We reduce our EPS forecasts by 2-3%. We increase our VNB forecasts by <1%. Our target price HK$30 is unchanged. Price catalyst 12-month price target: HK$30.00 based on an Appraisal methodology. Catalyst: Monthly premium trends, policy reforms, 1H16 results due in August. Action and recommendation Outperform rating. The company continues to deliver above-average new business growth, yet we think the stock trades cheaply at 0.57x P/EV.
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China Taiping Insurancexqdoc.imedao.com/153ba87ee8772e3fda7af7e3.pdf · 2016. 3. 28. · +852 3922 3567 [email protected] Howard Li +852 3922 1497 [email protected]
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Please refer to page 10 for important disclosures and analyst certification, or on our website
www.macquarie.com/research/disclosures.
HONG KONG
966 HK Outperform
Price (at 08:00, 23 Mar 2016 GMT) HK$17.72
Valuation HK$ 48.12 - Sum of Parts
12-month target HK$ 30.00
Upside/Downside % +69.3
12-month TSR % +69.3
Volatility Index High
GICS sector Insurance
Market cap HK$m 63,686
Market cap US$m 7,945
Free float % 40
30-day avg turnover US$m 20.1
Number shares on issue m 3,594
Investment fundamentals Year end 31 Dec 2015A 2016E 2017E 2018E
NEP bn 9.1 10.8 12.0 13.3 Underwriting Result bn -14.9 -18.3 -22.4 -27.4 Investment Income bn 2.4 2.4 2.8 3.2 Life Prem bn 102.3 127.0 152.0 180.7 Life Total Rev bn 126.1 142.2 177.6 213.0 Pretax Life Op Inc bn 8.8 5.7 7.6 9.9 PBT bn 11.0 8.4 10.4 13.0 Reported profit bn 6.3 5.2 6.4 7.9
Net Op Income bn 6.3 5.2 6.4 7.9
EPS adj HK$ 1.95 1.44 1.79 2.21 PER adj x 9.1 12.3 9.9 8.0 DPS HK$ 0.00 0.00 0.00 0.00 Dividend yield % 0.0 0.0 0.0 0.0 Total SH Funds bn 71.8 79.9 88.8 99.8 BV/S HK$ 16.62 18.50 20.84 23.50 ROE % 12.6 8.2 9.1 10.0 ROA % 1.4 1.0 1.0 1.0 P/BV x 1.1 1.0 0.9 0.8 Tot Embedded Val bn 81.9 107.2 127.0 150.0
966 HK rel HSI performance, & rec history
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Fig 2 Growth in value of new business… Three strong years in a row. FY15 VNB rose 48% (in RMB) and accelerated HoH into 2H15
Note: Growth rates shown are in HK$ reporting currency. Source: Company data, Macquarie Research, March 2016
Fig 3 Sales volume growth... Weaker sales in 2H15 across all channels. We expect this reflects a focus on better quality products (as per management commentary) and preparation for 1Q16 boom.
APE = Annualised premium equivalent (of new policy sales). Source: Company data, Macquarie Research, March 2016
Source: Company data, Macquarie Research, March 2016
Fig 5 Agent productivity… Sales per agent fell sharply in 2H15 after the headcount increases of the prior two years. We expect this to continue in 2016 as new agents take time to contribute.
Source: Company data, Macquarie Research, March 2016
Fig 6 VNB margin by channel... Very strong agent margin improvement in 2H15
Source: Company data, Macquarie Research, March 2016
Fig 7 Agent sales by premium payment term... Average premium term has been shortening over the past three to four years, however majority of business is still healthy with >10Y terms.
Note: Data based on agent channel first-year regular premiums (FYRP) Source: Company data, Macquarie Research, March 2016
Fig 8 Agent sales by product type... Clear focus on long-term products and ongoing skew toward protection products
Note: Data based on agent channel first-year regular premiums (FYRP) Source: Company data, Macquarie Research, March 2016
Fig 9 Allocation of investment assets… Clear skew toward debt schemes and alternative fixed income classes since CIRC liberalisation in 2011. Taiping has the most aggressive investment allocation amongst the listed players.
Source: Company data, Macquarie Research, March 2016
The quant model currently holds a reasonably positive view on China
Taiping Insurance. The strongest style exposure is Valuations, indicating
this stock is under-priced in the market relative to its peers. The weakest
style exposure is Price Momentum, indicating this stock has had weak
medium to long term returns which often persist into the future.
Displays where the
company’s ranked based on
the fundamental consensus
Price Target and
Macquarie’s Quantitative
Alpha model.
Two rankings: Local market
(China) and Global sector
(Insurance)
120/246 Global rank in
Insurance
% of BUY recommendations 68% (13/19)
Number of Price Target downgrades 7
Number of Price Target upgrades 0
Macquarie Alpha Model ranking Factors driving the Alpha Model
A list of comparable companies and their Macquarie Alpha model score
(higher is better).
For the comparable firms this chart shows the key underlying styles and their
contribution to the current overall Alpha score.
Macquarie Earnings Sentiment Indicator Drivers of Stock Return
The Macquarie Sentiment Indicator is an enhanced earnings revisions
signal that favours analysts who have more timely and higher conviction
revisions. Current score shown below.
Breakdown of 1 year total return (local currency) into returns from dividends, changes
in forward earnings estimates and the resulting change in earnings multiple.
What drove this Company in the last 5 years How it looks on the Alpha model
Which factor score has had the greatest correlation with the company’s
returns over the last 5 years.
A more granular view of the underlying style scores that drive the alpha (higher is
better) and the percentile rank relative to the sector and market.
Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group ([email protected])
Fu
nd
am
en
tals
Quant
Local market rank Global sector rank
Attractive
0.2
0.5
0.6
1.0
1.5
1.6
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0
China Life Insurance
Ping An Insurance
China Taiping Insurance
New China Life Insurance
China Pacific Insurance
AIA Group
-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100%
China Life Insurance
Ping An Insurance
China Taiping Insurance
New China Life Insurance
China Pacific Insurance
AIA Group
Valuations Growth Profitability Earnings
Momentum
Price
Momentum
Quality
-0.5
-0.1
-0.3
-0.3
0.5
-0.1
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0
China Life Insurance
Ping An Insurance
China Taiping Insurance
New China Life Insurance
China Pacific Insurance
AIA Group
-60% -40% -20% 0% 20% 40% 60%
China Life Insurance
Ping An Insurance
China Taiping Insurance
New China Life Insurance
China Pacific Insurance
AIA Group
Dividend Return Multiple Return Earnings Outlook 1Yr Total Return
Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield
Macquarie – South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%
Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return
Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return
Volatility index definition*
This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only
Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations
Financial definitions
All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).
Recommendation proportions – For quarter ending 31 December 2015
AU/NZ Asia RSA USA CA EUR
Outperform 50.68% 61.04% 53.16% 47.90% 65.22% 43.59% (for global coverage by Macquarie, 5.33% of stocks followed are investment banking clients)
Neutral 31.51% 24.66% 34.18% 47.70% 29.71% 34.62% (for global coverage by Macquarie, 5.02% of stocks followed are investment banking clients)
Underperform 17.81% 14.30% 12.66% 4.39% 5.07% 21.79% (for global coverage by Macquarie, 3.78% of stocks followed are investment banking clients)
966 HK vs HSI, & rec history
(all figures in HKD currency unless noted)
Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, March 2016
12-month target price methodology
966 HK: HK$30.00 based on a Appraisal methodology
Company-specific disclosures: 966 HK: Macquarie Capital Limited makes a market in the securities of China Taiping Insurance Holdings Co Ltd. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures.
Date Stock Code (BBG code) Recommendation Target Price 17-Feb-2016 966 HK Outperform HK$30.00 26-Aug-2015 966 HK Outperform HK$32.00 08-May-2015 966 HK Outperform HK$35.00 27-Mar-2015 966 HK Outperform HK$30.00 11-Feb-2015 966 HK Outperform HK$28.00 25-Aug-2014 966 HK Outperform HK$21.85 31-Mar-2014 966 HK Outperform HK$17.10 13-Dec-2013 966 HK Outperform HK$16.15
Target price risk disclosures: 966 HK: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures.
Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Ltd total revenues, a portion of which are generated by Macquarie Group’s Investment Banking activities. General disclaimers:
Find our research at Macquarie: www.macquarie.com.au/research Thomson: www.thomson.com/financial Reuters: www.knowledge.reuters.com Bloomberg: MAC GO Factset: http://www.factset.com/home.aspx CapitalIQ www.capitaliq.com Email [email protected] for access