PICC Group’s Underwriting Profitability Was Pressured by Natural Disasters in Q3

PICC Group’s net profit for the first three quarters grew 11% year on year to CNY 20.8 billion. The slowing growth was attributable to losses related to natural disasters, and A-share market’s underperformance following a strong rally in early 2021. The third quarter reported an underwriting loss of CNY 2.2 billion, dragged by increased claims of Henan flood which is estimated to be a net loss of CNY 2.8 billion. Return on equity improved one percentage point to 9.9% from the year-ago period despite the difficulties. We retain our fair value estimate of HKD 4. Our valuation implies a forward price/book ratio of 0.8 times for P&C insurance, and 0.4 times respectively for the life insurance and health insurance businesses. The stock is undervalued and trading at 0.4 times forward PB. We are positive on the long-term outlooks of its 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 its vast customer pool.