Taiping (966 HK): Looks Cheap For The Growth, But Do The Quality Concerns Matter?

Global Senior Analyst, Fundamental Equity Research

Emile Farsoun

Equity Bottom-Up

China Taiping Insurance Hldgs / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/china-taiping-insurance-hldgs-co-ltd" target="_blank" data-smartkarma-citation="entities:489:1" rel="noopener">China Taiping Insurance Hldgs (966 HK)</a> reported poor first half results, which missed estimates, with surprisingly weaker than expected trends in the Life business.In 1H19, Taiping's total premiums written and policy fees rose by 6.8% y/y to HK$ 138.9 billion, while profit attributable to owners rose by 29.5% y/y to HK$ 6.7 billion on the tax changes. Group embedded value per share attributable to owners rose by 12.2%  in the first half to HK$ 43.6 billion.Key operating metrics were weak with NBV declining 9.5% (in RMB terms) while NBV margin fell by 3.5 pts to 26.4% due to increased competition. The outlook remains bleak, given the challenges in the agency distribution with agents shrinking by 8%.In our initiation note, we highlighted that the capital is an issue, which renders the company uninvestable to many. The fall in the solvency of the China P&amp;C business to 189% is further evidence. In addition, the lack of growth in the first half makes us incrementally more negative as we conclude that the stock does not discount all the risks at the current valuation.

China Taiping Insurance Hldgs (966 HK) reported poor first half results, which missed estimates, with surprisingly weaker than expected trends in the Life business.In 1H19, Taiping's total premiums written and policy fees rose by 6.8% y/y to HK$ 138.9 billion, while profit attributable to owners rose by 29.5% y/y to HK$ 6.7 billion on the tax changes. Group embedded value per share attributable to owners rose by 12.2%  in the first half to HK$ 43.6 billion.Key operating metrics were weak with NBV declining 9.5% (in RMB terms) while NBV margin fell by 3.5 pts to 26.4% due to increased competition. The outlook remains bleak, given the challenges in the agency distribution with agents shrinking by 8%.In our initiation note, we highlighted that the capital is an issue, which renders the company uninvestable to many. The fall in the solvency of the China P&amp;C business to 189% is further evidence. In addition, the lack of growth in the first half makes us incrementally more negative as we conclude that the stock does not discount all the risks at the current valuation.

Taiping (966 HK): Poor First Half Results; Outlook To Remain Weak