<Analyst briefing takeaway>PICC Group (1339 HK, HOLD) & PICC P&C (2328 HK, F.V.): FY21 results missed
What’s new:
- PICC Group (1339 HK, HOLD) and PICC P&C (2328 HK, FULLY VALUED) announced FY21 results which posted net profits of Rmb30bn and Rmb22bn, up 8% and 7% y-o-y respectively, representing 90% /102% of ours FY21F earnings estimate.
Our views:
- VNB of Life business down 35% y-o-y to Rmb4bn in FY21, missed our previous VNB forecast of down 12% y-o-y. The VNB miss was primarily due to the sluggish market demand and shift of products mix towards savings product, which leads to less value-added.
- Combined ratio of P&C business recorded at 99.6%, +0.7ppt y-o-y. The deteriorating combined ratio was primarily due to the catastrophic flooding and typhoon in FY21 that caused rise of loss ratio of auto, agriculture, liability, and commercial property insurance
- We attended the group FY21 result briefing with following key takeaways:
- Management remains positive on the potential growth of insurance market given low insurance penetration and imbalance product offering that cannot precisely meet client, institutions, and government demands, providing huge improving space and opportunity for insurers to expand.
- Management highlighted several criteria in deciding dividend payout: 1) cash dividend no less than 10% of net profits, 2) dividend payout ratio no less than 30%, and 3) will payout dividend once per year and will try their best to do share offerings.
- Management claims that as the key business of P&C, auto insurance holds strong data advantage from large client base, which could help them build more accurate pricing model. The company has also restructured their agent channel and has deep cooperation with automobile OEM and dealerships to save more costs. Overall, management is confident to reach below 97% auto insurance combined ratio
- In terms of expected disasters in FY22, the company expects higher likelihood of flooding in North and South China but overall damage will be much mild than in FY21
- In terms of impact from C-ROSS II Phase 2 to solvency ratio, management emphasized that solvency ratio will be impacted but manageable and will substantially higher than regulatory requirement. C-ROSS II Phase 2 will not hurt dividend payout and business operation.
- Overall we maintain HOLD on PICC Group with TP of HK$2.55 and FULLY VALUED on PICC P&C with TP of HK$5.5.