《CHINA_INSURANCE：SHARE_PRICE_DRIVERS_UNCOVERED-2012-10-11.ppt》由会员分享，可在线阅读，更多相关《CHINA_INSURANCE：SHARE_PRICE_DRIVERS_UNCOVERED-2012-10-11.ppt（20页珍藏版）》请在三一办公上搜索。
1、,FIGInsuranceEquity ChinaChina InsuranceShare price drivers uncoveredValuation summary,abcGlobal Research We ran a comprehensive quant analysison the Chinese insurers,comprising1,139 regressions and 40k data points Life insurers have become proxiesfor wealth management and trust(WM/trust)sales,Stock
2、,Bloomberg Cur-HSBCticker rency rating,Currentprice,Target Potlprice return*,Outperformance of AIA during results,AIAChina Life HChina Pacific HChina TaipingPing An HNew China Life HChina Life AChina Pacific APing An ANew China Life A,1299 HK2628 HK2601 HK966 HK2318 HK1336 HK601628 CH601601 CH601318
3、 CH601336 CH,HKDHKDHKDHKDHKDHKDRMBRMBRMBRMB,OWN(V)OW(V)OW(V)N(V)OW(V)N(V)OW(V)OW(V)N(V),30.022.923.512.460.225.518.920.241.924.5,32.024.035.016.071.036.018.928.056.028.0,7%5%49%29%18%41%0%39%34%14%,season has become a crowded tradeBuy the Chinese Life insurers for outperformance whenWM/trust m-o-m g
4、rowth turns negative.We have found astatistically significant negative relationship betweenWM/trust sales lagged two months and relative share priceperformance.This should not be a major surprise,as,*Potential return equals the percentage difference between the current share price and the target pri
5、ceSource:Bloomberg,HSBC estimates;priced at close of 5 October 201210 October 2012James E Garner*,CFAHead of Asian Insurance ResearchThe Hongkong and Shanghai Banking Corporation Limited+852 2822 4321.hkGrace Q Zhou*AnalystThe Hongkong and Shanghai Banking Corporation Limited+852 2996 3053.hkMichael
6、 Chang*,CFAAnalystThe Hongkong and Shanghai Banking Corporation Limited,WM/trust products are perceived to compete with lifeinsurance products.China Taipings relative share priceperformance is 3x more geared than China Lifes.Investors should think twice about playing AIA into theresults,as it has be
7、come a crowded trade.Our eventanalysis reveals that outperformance of AIA shares over theperiods five days before results and two days after hascompressed to 1%.The market has caught onto the fact thatAIA carefully manages expectations.China Taiping stock is primed for outperformance,as itsP/EV mult
8、iple has de-rated significantly against thesector on a 1M and 3M basis.We found relative P/EVrating m-o-m lagged as a reliable predictor of relative shareprice performance for four out of five stocks we analysed.H-share investors should not pay too much attention toearnings revisions,PE,monthly prem
9、ium growth ormonthly market share changes.We found limitedstatistically significant relationships between absolute and,+852 2996 6555,.hk,relative share price performance of the Chinese insurers andthe aforementioned factors.,View HSBC Global Research at:http:/*Employed by a non-US affiliate of HSBC
10、 Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulationsIssuer of report:The Hongkong and Shanghai BankingCorporation LimitedDisclaimer&DisclosuresThis report must be read with thedisclosures and the analyst certificationsin the Disclosure appendix,and with theDisclaimer,whi
11、ch forms part of it,Buy Ping An and China Taiping shares if you think theChina bank shares will underperform the market.Ourregression analysis reveals that Ping An and China Taipingshares have consistently outperformed the market when banksector shares have underperformed.Fundamentally we find itodd
12、 that the market uses Ping An to play the insurance/bankswitch given its material banking exposure.,FIGInsurance10 October 2012Share price driversuncovered After a fruitless fieldtrip,we decided to dispense with anotherunchanged fundamental update and perform some painful quantanalysis on the Chines
13、e insurance space We ran 1,139 regressions(both single and multi-factor)using 233different variables and more than 40,000 data points in search ofstatistically significant relationships Our regression and event-driven analysis found a handful ofinteresting results,some of which are counterintuitive,
14、abc,Executive summaryAfter another fieldtrip that heralded few newinsights into the Chinese insurance space,wedecided to dispense with another fundamentalupdate(see our report of 4 July 2012,AsianInsurance:Groundhog Day,as little has changedsince then)and perform some rather painful(understatement!)
15、technical analysis our readersmay find useful.In total we ran 1,139 regressions(both singleand multi-factor)using 233 different variablesand over 40,000 data points in search ofstatistically significant relationships(defined ast-stat 1.96 or-1.96)to help us predict futureshare price performance.2,Bu
16、y Chinese Life insurers for outperformancewhen WM/trust m-o-m growth turns negative.Chinese Life insurers have become proxies forWM/trust sales;We found a statisticallysignificant negative relationship(t-stat-1.96)between WM/trust sales lagged two months andrelative share price performance of ChinaP
17、acific,China Life,Ping An and China Taiping.This should not be a major surprise as WM/trustproducts are perceived to compete with lifeinsurance products.Investors should buyinsurance shares when m-o-m growth rate ofWM/trust sales begins to turn negative.We arenot there yet but m-o-m growth is beginn
18、ing toslow as Exhibit 1 illustrates.,Sep-08,Sep-09,Sep-10,Sep-11,Sep-12,Mar-08,Mar-09,Mar-10,Mar-11,Mar-12,200%,0%,-100%,0.01,FIGInsurance10 October 2012Exhibit 1:Historical wealth management/trust sales growthM-o-M300%100%WM/Trust sales grow th rateSource:HSBCInvestors should not play AIA as a trad
19、ing callgoing into the results as it has become acrowded trade.Event analysis reveals that theoutperformance of AIA shares through resultsseasons has become a crowded trade.Our eventanalysis reveals that outperformance of AIAshares over the period 5 days before results dayand two days after has comp
20、ressed to 1%.Exhibit 2:AIA relative share price outperformed over resultsperiod:buy 5 days before and sell 2 days after results,as a key share price driver.We have long arguedthat it is impossible to forecast life insurersearnings for the following reasons:Nonsensical earnings disclosure that does n
21、otshow how low insurers make money.The impossibility of forecasting equityimpairment charges,given no disclosure ofeither accounting policy or stock of unrealisedlosses on equities(having unrealised loss onAFS investments only is useless)Opaque non-traditional reserving policieswhereby insurers have
22、 the ability to boostearnings by increasing their risk margins asmuch as 150bp.Regression analysis indicates that ChinaTaiping stock is primed for outperformance asits P/EV has de-rated significantly against thesector on a 1M and 3M basis.We found thatrelative P/EV rating m-o-m lagged as a relativel
23、yreliable predictor of relative share price performancefor four out of five stocks we analysed the outlier,abc,12%10%8%,7.9%,10.8%,was nearly significant,with a t-stat of-1.92.Exhibit 3:Relative P/EV lagged 3M and 1M for respectiveinsurers,6%4%2%0%Source:HSBC,3.7%FY10 1H11 FY11AIA relativ e share pr
24、ice performance,1.0%1H12,0.10.0-0.1-0.2-0.3-0.4-0.5,0.12China Pacific,0.00-0.02Ping An,-0.02-0.11China Life,-0.23-0.47China,Taiping,H-share investors should not focus on earnings.,Relativ e P/EV lagged 3M,Relativ e P/EV lagged 1M,Analysis confirms that P/EV not earnings basedmetrics drives relative
25、share price performance ofH-share insurers.No two insurers have exhibiteda statistically significant relationship betweentheir share price performance and lagged PE orEPS revision based metrics.In short,H-shareinvestors should not focus on earnings estimates,Source:HSBCBuy Ping An and China Taiping
26、shares whenwe expect China bank shares to underperformthe market.Our regression analysis reveals thatPing An and China Taiping shares tend tooutperform the market when bank sector shares,3,Sep-05,Sep-06,Sep-07,Sep-08,Sep-09,Sep-10,Sep-11,Sep-12,1,2,3,-10%,-15%,FIGInsurance10 October 2012have underpe
27、rformed i.e.they are chief proxiesfor the Bank/Insurance switch trade.We find itbizarre that Ping An is used to playBank/Insurance switch given that it is the oneinsurer with a material banking exposure.Wethink Ping An is used to play switch for threereasons,some of which may become challengedover c
28、oming months:Investors do not want to exit bank sectorcompletely so hedge their exposure by goinglong the only insurer with meaningfulbanking exposure.Market sees Ping An as blue chip qualityinsurer and would rather take in some bankexposure than trade down into what somemarket participants view as
29、lower-quality orless investment-savvy insurers.That said,it isinteresting that our event analysis reveals thatChina Pacific generates the same average 1.2pptof outperformance during results season and hasa better track record on beating new businessvalue(NBV)expectations going into the results.Marke
30、t has not caught onto the fact that PingAn has material exposure to China Banksector having increased its stake in Ping AnBank from 30%to 52%in July 2011.Exhibit 4:Historical China Bank shares relative performance15%10%5%0%-5%China Bank share relativ e performanceSource:HSBC,Investors should not pay
31、 too much attention tomonthly life premiums.We found no statisticallysignificant relationship between monthly relativeshare price performance and monthly Lifepremium growth lagged or life premium marketshare change lagged.Quantitative analysisMethodologyAfter another fieldtrip which heralded few new
32、insights into the Chinese insurance space wedecided to dispense with another fundamentalupdate(see our report of 4 July,Asian Insurance:Groundhog Day,as little has changed)andperform some rather painful(understatement!)technical analysis our readers may find useful.We performed basic statistical ana
33、lysis on a varietyof macro economic,insurance industry and companyspecific data to identify share price correlations.In total we ran 1,139 regressions(both singleand multi-factor)using 233 different variablesand over 40,000 data points in search ofstatistically significant relationships(defined ast-
34、stat 1.96 or-1.96)to help us predict futureshare price performance.Many of the regressions pitted independentvariables against absolute share price performanceand more importantly relative share priceperformance against the Hang Seng Index(HSI),which strips out general equity market gearingwhich pre
35、-dominates most absolute share priceperformance analysis for insurers.We restricted our analysis to the H-shares of themajor listed Chinese insurers and regressed dataon a monthly basis.Each regression comprisedanywhere between 30 to 104 observations.Frustratingly,but predictably our quantitative,ab
36、c,analysis revealed only a few statisticallysignificant regressions.4,0.00,-0.02,2,3,17,2,1,069,1,134,41,FIGInsurance10 October 2012Many of those statistically significantrelationships that did exist would have beentargeted by more able quants than ourselves.Itwas interesting that where we did find
37、statisticallysignificant relationships it was only applicable toone of the five insurers we ran the analysis for.,significant relationship between WM/trustsales and Life premiums.Exhibit 6:China Taipings relative share price performance is3x more sensitive to lagged WM/trust sales growth,abc,Exhibit
38、 5 shows that out of the 1,134 single factor,-0.04,-0.03,regressions we ran for the five companies,onlyseven were statistically significant for three ormore of the companies.,-0.06-0.08-0.10-0.12,-0.11,-0.06,-0.05,Exhibit 5:Summary of number of regressions which arestatistically significantSignifica
39、nt for,Count,Taiping,ChinaPacific,Ping An,China Life,5 companies4 companies3 companies2 companies1 companyNoneTotal number of single factor regressionsSource:HSBCKey share price relationships Wealth Management(WM)and Trust salesdo influence relative share price performance(see Exhibit 7).We found a
40、negativerelationship between WM/trust sales laggedtwo months and relative share priceperformance of China Pacific,China Life,PingAn and China Taiping.This makes sense asWM/trust products are perceived to competewith life insurance products that account for thebulk of Chinese insurers valuations.This
41、 isfurther supported by the fact that the onlyinsurer without a life business,is the onewithout a statistically significant relationshipbetween its share price and WM/trust sales.Wefound that China Taipings relative share priceperformance is 3x more sensitive to laggedWM/trust sales than China Life.
42、China Taipingis the most dependent on bancassurancedistribution coincidence?Although thereseems sensible rationale for the relationship it isinteresting to note that there is no statistically,Source:HSBC Lagged earnings based metrics do notappear to drive insurance H-share insuranceperformance.No tw
43、o insurers have exhibiteda statistically significant relationship betweentheir share price performance(both relativeand absolute basis)and lagged PE or EPSrevision based metrics.This supports ourbelief that the market focuses on EmbeddedValue(particularly P/EV)based metricswhere there are statistica
44、lly significantrelationships for two or more insurers.Further,the one insurer that is appraised on an earnings-based methodology exhibits no statisticallyrelationship between its share price performanceand either EPS revisions or PE ratios.Insurers whose P/EV rating deterioratesrelative to the secto
45、r tend to outperformover the coming months(see Exhibit 8).Wefound a negative correlation between 12Mforward P/EV relative to the sector lagged onemonth”and relative share price performanceof China Pacific and China Taiping sharesversus the HSI.The relationship is borderlinesignificant for China Life
46、(-1.92 t-stat).Wealso found a statistically significantrelationship between P/EV relative to thesector lagged three months and the relative,5,FIGInsurance10 October 2012share price performance of the two othermajor H-share listed insurers.It is veryevident that relative P/EV rating is a reliablepred
47、ictor of relative share price performancefor four stocks(and nearly five).Monthly share price performance does notappear to be not driven by either insurancepremium growth or market share changes.We found no statistically significant relationshipbetween monthly relative share priceperformance and ei
48、ther monthly premiumgrowth lagged or premium market sharechange lagged.Only China Pacific exhibitsany correlation and that is between absoluteshare price performance(which contains a lotof noise from broad equity market impact)and monthly Life premium growth laggedone month.That is a little counter
49、intuitive asChina Pacific derives a greater proportion ofits business from non-life(c39%of grosspremiums written)than life biased peers suchas China Life(100%of GPW).Relative share price performance of PingAn and Taiping are negatively correlatedto relative performance of China Bankshare price index
50、(see Exhibit 9).Thissupports our widely held belief that one of thebiggest trades in the sector is the switchingbetween China banks and China insurers.This switching undoubtedly benefited theChinese insurers during the 1H of this year,driving significant outperformance in a sectorwhere fundamentals
