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1、,3,3,3,3,3,November 14,2012China:InsuranceEquity ResearchRestacking picks:Mild growth for longer,favor return and valueOperating prospects still mixed,but look largely priced in,It is proving to be a surprisingly long low-growth cycle for most Chinese,UPGRADES,DOWNGRADES,NEW TARGET PRICES,life insur
2、ers,with 2011/1H12 NBV growth of 7%/0.2%on average for the,Rating change,Share,12-mon,Prior12-mon,Potential,sector.We believe much of this low growth has already been priced in(sector 2013E P/EV and NBM at 74%/45%of historical averages).However,we believe life sector growth will remain mild in 2013,
3、with the industryshifting its focus to volume from margins.To reflect this,we lower 2012E-14E NBV growth by 2%/4%/0%and adjust our target prices by-10%to 12%.,H-share insurers(HK$)China Life(H)Ping An(H)CPIC(H)NCI(H)TaipingA-share insurers(Rmb)China Life(A)Ping An(A)CPIC(A)NCI(A)*:On regional convic
4、tion list,Ticker2628.HK2318.HK2601.HK1336.HK0966.HK601628.SS601318.SS601601.SS601336.SS,NewratingNeutralBuyNeutralBuy*BuyNeutralBuy*NeutralBuy,OldratingNeutralBuyBuyBuy*NeutralNeutralBuy*BuyNeutral,price11/9/201223.1061.2024.0025.7012.9617.9438.6117.9221.67,Pricetarget26.3879.3829.2141.4419.5021.376
5、4.2923.6633.57,Pricetarget23.5977.7232.5143.6817.9619.1162.9526.3435.38,upside/downside14%30%22%61%50%19%67%32%55%,Source:Datastream,Goldman Sachs Research estimates.We expect life environment to stabilize,but value growth may lag,Agency:We forecast first-year premium growth of 8%-15%in 2013E,but,AS
6、SUMPTIONS FOR OUR MIDPOINT AV-BASED TP,we expect it to be of mixed quality as we believe the industry will need to,Discount,3-stage growth model1st stage 2nd stageNBV No.of NBV No.of,Terminal stageAPE NBV,Mid point valuationImplied Implied2013E 2013E,focus more on volumes than margins to keep the ag
7、ency force engaged.,H-share insurers(HK$),Ticker,Rate,CAGR,years,CAGR years,CAGR,CAGR,P/EV(X),NBM(X),We expect to see some strategic diversions with China Life/Taiping,China Life(H)Ping An(H),2628.HK2318.HK,12.5%13.0%,7.2%5.5%,9.0%9.5%,1010,4.0%4.0%,4.0%4.0%,1.771.65,11.6811.29,focusing more on volu
8、me,while Ping An/CPIC/NCL continue to focus onhigher-margin long-term products.Bancassurance:We expect the volumedecline to stabilize as liquidity conditions improve,but any recovery couldbe tempered by one to two more years of transitioning as insurers adapt to,CPIC(H)NCI(H)TaipingA-share insurers(
9、Rmb)China Life(A)Ping An(A)CPIC(A)NCI(A),2601.HK1336.HK0966.HK601628.SS601318.SS601601.SS601336.SS,13.0%14.5%14.5%12.5%13.0%13.0%14.5%,4.5%5.2%7.2%7.2%5.5%4.5%5.2%,3333,8.0%6.0%6.0%9.0%9.5%8.0%6.0%,10101010101010,4.0%4.0%4.0%4.0%4.0%4.0%4.0%,4.0%4.0%4.0%4.0%4.0%4.0%4.0%,1.521.621.491.771.651.521.62,
10、10.628.718.8911.6811.2910.628.71,new regulations/competition from banks wealth management products.,Source:Goldman Sachs Research estimates.,SECTOR VALUATION METRICSLittle differentiation in growth outlook,prefer return and value,We do not expect too much differentiation in terms of growth or capita
11、l-,P/EV(X)2012E 2013E,NBM(X)2012E 2013E,P/B(X)2012E 2013E,EV growth2012E 2013E,NBV growth2012E 2013E,raising needs in 2013,and it will take time for new sector drivers toemerge.We prefer names with higher return potential(EV growth)andmore reasonable valuations.Top picks:NCI,Taiping,Ping An,H-share
12、insurers(HK$)China Life(H)Ping An(H)CPIC(H)NCI(H)TaipingAverage(H)A-share insurers(Rmb)China Life(A)Ping An(A)CPIC(A)NCI(A)Average(A),1.701.441.411.151.141.371.631.121.301.191.31,1.551.271.251.010.991.211.480.991.151.051.17,10.47.47.71.92.46.09.42.05.72.54.9,8.34.75.10.1(0.2)3.67.4(0.2)3.10.72.7,2.4
13、92.552.141.781.712.142.391.981.971.852.05,2.202.051.921.571.591.872.111.601.771.631.78,6%16%10%16%14%12%6%16%10%16%12%,10%13%13%14%16%13%10%13%13%14%13%,4%-3%-1%0%5%1%4%-3%-1%0%0%,7%9%4%6%5%6%7%9%4%6%7%,With this report,Mancy Sun assumes primary coverage of China Life,Ping An,CPIC,NCI and Taiping.In
14、 the short term,we believe NCI andTaiping offer the higher return given their highest EV growth potential andundemanding valuations.In the longer term,we believe Ping An is still thebest positioned in terms of distribution channel/diversified earnings mix,management and agency quality.We expect rela
15、tive underperformers tobe CPIC(down to Neutral)and China Life(maintain Neutral)mainly due tovaluations.The key upside/downside risk remains A-share performance,with NCI and Taiping the most levered.Other risks include sharp moves inbond yields and a better-/worse-than-expected growth recovery.,Sourc
16、e:Datastream,Goldman Sachs Research estimatesSource:Goldman Sachs Research estimates,Mancy Sun+852-2978-6072 Goldman Sachs(Asia)L.L.C.Ning Ma+86(10)6627-3063 Beijing Gao Hua Securities Company LimitedThe Goldman Sachs Group,Inc.,Goldman Sachs does and seeks to do business withcompanies covered in it
17、s research reports.As a result,investors should be aware that the firm may have a conflict ofinterest that could affect the objectivity of this report.Investorsshould consider this report as only a single factor in makingtheir investment decision.For Reg AC certification and otherimportant disclosur
18、es,see the Disclosure Appendix,or go Analysts employed by non-US affiliates are not registered/qualified as research analystswith FINRA in the U.S.Global Investment Research,3,5,9,10,13,16,18,20,23,26,2,November 14,2012Table of contentsOverview:Mild growth for longer,favor return and valueLow growth
19、 mostly priced in but robust pick-up looks unlikelyLittle differentiation in growth outlook,prefer return and valueWhat other factors to consider?Rating changes and estimate revisionsTaiping(0966.HK):Negatives look priced in,attractive value;to BuyNew China Life(601336.SS):Story delayed but still in
20、tact;to BuyCPIC(H/A)(2601.HK/601601.SS):Sensible but fairly valued;to NeutralAppendix 1:Detailed revision of estimatesAppendix 2:Financial summariesDisclosure Appendix,China:Insurance31,Prices in this report are as of the close of November 9,2012,unless other specified.The author would like to thank
21、 Jessica Zhao for her contribution to this report.Exhibit 1:Valuation comparison of Chinese life insurers,Shareprice,Potentialupside/d,P/EV(X),NBM(X),P/B(X),P/E(X),EV growth,11-14E,NBV growth,11-14E,Ticker,11/9/12,ownside 2012E,2013E,2014E,2012E,2013E,2014E,2012E,2013E,2014E,2012E 2013E 2014E,2012E,
22、2013E 2014E,CAGR,2012E,2013E,2014E,CAGR,H-share insurers(HK$),China Life(H)Ping An(H)CPIC(H)NCI(H)TaipingAverage(H),2628.HK2318.HK2601.HK1336.HK0966.HK,23.1061.2024.0025.7012.96,14%30%22%61%50%35%,1.701.441.411.151.141.37,1.551.271.251.010.991.21,1.431.151.130.900.861.09,10.47.47.71.92.46.0,8.34.75.
23、10.1(0.2)3.6,6.32.62.7(1.4)(2.7)1.5,2.492.552.141.781.712.14,2.202.051.921.571.591.87,1.941.691.711.371.431.63,36.816.339.819.019.726.3,16.010.914.813.49.713.0,13.49.512.411.56.610.7,6%16%10%16%14%12%,10%13%13%14%16%13%,9%11%10%11%16%11%,8%13%11%14%15%12%,4%-3%-1%0%5%1%,7%9%4%6%5%6%,11%11%11%10%12%1
24、1%,7%5%4%5%7%6%,A-share insurers(Rmb),China Life(A)Ping An(A)CPIC(A)NCI(A)Average(A),601628.SS601318.SS601601.SS601336.SS,17.9438.6117.9221.67,19%67%32%55%43%,1.631.121.301.191.31,1.480.991.151.051.17,1.370.891.040.941.06,9.42.05.72.54.9,7.4(0.2)3.10.72.7,5.5(1.8)0.9(0.9)0.9,2.391.981.971.852.05,2.1
25、11.601.771.631.78,1.861.321.581.431.54,35.312.736.719.826.1,15.38.513.713.912.9,12.97.411.412.010.9,6%16%10%16%12%,10%13%13%14%13%,9%11%10%11%10%,8%13%11%14%12%,4%-3%-1%0%0%,7%9%4%6%7%,11%11%11%10%11%,7%5%4%5%6%,Source:Company data,Datastream,Goldman Sachs Research estimates.Goldman Sachs Global Inv
26、estment Research,+,+,3,November 14,2012Overview:Mild growth for longer,favor return and valueExhibit 2:Catalysts versus risks:How they stack upNCI and Taiping offer better short-term return and value,Ping An better positioned for long term,China:Insurance,Qualitative assessment,China Life,Ping An,CP
27、IC,NCI,Taiping,POSITIONING FOR SHORT-TERM GROWTH,EV growth,+,+,+,+,NBV growth,+,+,+,+,+,Margin upside through mix improvement,Resilience to bancassurance slowdown,+,+,+,POSITIONING FOR LONG-TERM GROWTH,Management quality/track record,+,+,+,Agency productivity/training,+,+,+,Market share,+,+,+,+,Alte
28、rnative distribution channel built-out,Cross-selling platform built-out,+,+,+,SHORT-TERM CATALYSTS,Sensitivity to A-share market/investment yield,+,+,+,+,LONG-TERM STRUCTURAL DRIVERS,Shanghai tax deferral pension programInvestment channel expansion,+,+,+,+,+,Basic medical insurance programVALUATION
29、SUPPORT,+,+,2013E P/EV2013E NBM2012E-2014E EV CAGR2012E-2014E NBV CAGR,1.55X8.3X8%7%,1.27X4.7X13%5%,1.25X5.1X11%4%,1.01X0.1X14%5%,0.99X-0.2X15%7%,POTENTIAL RISKS,Solvency capital raising needs(short term)Margin compression from volume-driven strategy,Some,Some,SomeSome,Quantitative back-up assessmen
30、t,China Life,Ping An,CPIC,NCI,Taiping,POSITIONING FOR SHORT-TERM GROWTH,2012E-2014E EV CAGR2012E-2014E NBV CAGR,8%7%,13%5%,11%4%,14%5%,15%7%,POSITIONING FOR LONG-TERM GROWTH,Life market share(gross premium,9M12)FYP per agent per month(1H12)No.of life insurance agents(1H12)Cross-selling as%of P&C pre
31、mium(1H12),34%4846682000n.a.,13%731649358914.9%,10%44272700003.6%,10%4711207000n.a.,3%747351008n.a.,SHOR-TERM CATALYSTS,2012 earnings sensitivty to 10pp equity yield increase,31.5%,28.1%,23.9%,42.1%,38.5%,POTENTIAL RISKS,1H12 life solvecy margin ratio(%)2012E life solvency margin ratio(%)2013E life
32、solvency margin ratio(%)1H12 P&C solvecy margin ratio(%)2012E P&C solvency margin ratio(%)2013E P&C solvency margin ratio(%)1H12 group solvecy margin ratio(%)2012E group solvency margin ratio(%)2013E group solvency margin ratio(%),Legend:,231%238%223%n.a.n.a.n.a.231%238%223%Clearlynegative,167%161%1
33、58%164%161%152%177%191%188%Modestnegative,183%154%179%194%213%202%271%262%278%Positive,159%223%208%n.a.n.a.n.a.159%223%208%,169%172%189%n.a.n.a.n.a.n.a.n.a.n.a.,Source:Company data,Goldman Sachs Research estimates.Goldman Sachs Global Investment Research,4,November 14,2012,China:Insurance,Exhibit 3:
34、Taiping and NCI(A)up to Buy;CPIC(H/A)to Neutral;still Buy on Ping An(H/A)and NCI(H)and Neutral ChinaLife(H/A);trimming new business multiples given lower expectations on new business growth(except for China Life)Rating and target price changes,Rating change,Revised target price,Old target price,Shar
35、e,12-mon Potential Implied Implied Implied Implied,12-mon,Implied Implied Implied Implied,price,New,Old,Price,upside/12E P/EV NBM 13E P/EV NBM,Price Adjusted 12E P/EV NBM 13E P/EV NBM,Ticker,11/9/2012,rating,rating,target downside,2012E,2013E,target,by,2012E,2013E,H-share insurers(HK$),China Life(H)
36、Ping An(H)CPIC(H)NCI(H)Taiping,2628.HK2318.HK2601.HK1336.HK0966.HK,23.1061.2024.0025.7012.96,NeutralBuyNeutralBuy*Buy,NeutralBuyBuyBuy*Neutral,26.3879.3829.2141.4419.50,14%30%22%61%50%,1.941.871.721.851.72,14.0014.5313.5111.0711.92,1.771.651.521.621.49,11.6811.2910.628.718.89,23.5977.7232.5143.6817.
37、96,12%2%-10%-5%9%,1.61.81.81.91.6,10.813.113.110.610.7,1.51.61.51.61.3,9.39.99.57.46.5,A-share insurers(Rmb),China Life(A)Ping An(A)CPIC(A)NCI(A),601628.SS601318.SS601601.SS601336.SS,17.9438.6117.9221.67,NeutralBuy*NeutralBuy,NeutralBuy*BuyNeutral,21.3764.2923.6633.57,19%67%32%55%,1.941.871.721.85,1
38、4.014.513.511.1,1.771.651.521.62,11.6811.2910.628.71,19.1162.9526.3435.38,12%2%-10%-5%,1.61.81.81.9,10.813.113.110.6,1.51.61.51.6,9.39.99.57.4,*:On regional conviction listSource:Company data,Datastream,Goldman Sachs Research estimates.Exhibit 4:We see higher upside for NCI and Taiping,followed by P
39、ing An.Note we are pricing off midpoint valuation(average of full-growth and ex-growth Appraisal Value)over our 2012E estimates.New business multiple and discount rate assumptions,Discount rates,3-stage growth model,Mid point valuation,Mid,Potential,Risk-,Adj.,1st stage,2nd stage,Terminal stage,impl
40、ied,implied,implied,Stock,Point,upside/,free,risk,Discount,NBV,No.of,NBV,No.of,APE,NBV,2013E,2013E,2013E,Ticker,rating,Valuation downside,rate,prem.,rate,CAGR,years,CAGR,years,CAGR,CAGR,P/EV(X),NBM(X),P/B(X),H-share insurers(HK$),China Life(H)Ping An(H)CPIC(H),2628.HK2318.HK2601.HK,NeutralBuyNeutral
41、,26.3879.3829.21,14%30%22%,4.5%4.5%4.5%,8.0%8.5%8.5%,12.5%13.0%13.0%,7.2%5.5%4.5%,333,9.0%9.5%8.0%,101010,4.0%4.0%4.0%,4.0%4.0%4.0%,1.771.651.52,11.6811.2910.62,2.522.662.34,NCI(H)Taiping,1336.HK0966.HK,Buy*Buy,41.4419.50,61%50%,4.5%10.0%4.5%10.0%,14.5%14.5%,5.2%7.2%,33,6.0%6.0%,1010,4.0%4.0%,4.0%4.
42、0%,1.621.49,8.718.89,2.522.39,A-share insurers(Rmb),China Life(A)Ping An(A)CPIC(A),601628.SS601318.SS601601.SS,NeutralBuy*Neutral,21.3764.2923.66,19%67%32%,4.5%4.5%4.5%,8.0%8.5%8.5%,12.5%13.0%13.0%,7.2%5.5%4.5%,333,9.0%9.5%8.0%,101010,4.0%4.0%4.0%,4.0%4.0%4.0%,1.771.651.52,11.6811.2910.62,2.522.662.
43、34,NCI(A),601336.SS,Buy,33.57,55%,4.5%10.0%,14.5%,5.2%,3,6.0%,10,4.0%,4.0%,1.62,8.71,2.52,Source:Company data,Datastream,Goldman Sachs Research estimates.Goldman Sachs Global Investment Research,5,November 14,2012,China:Insurance,Low growth mostly priced in but robust pick-up looks unlikelyIt is pro
44、ving to be a surprisingly long low-growth period for most Chinese life insurers,with1H12 new business value(NBV)growth at 0.2%vs.2010/2011 at 25%/7%.However,we believe much of this low growth cycle may already be priced in,with shareprices for Chinese life insurers down 25%on average since end-2010,
45、and with the average2013E P/EV and NBM for the sector at 74%/45%of the historical averages(Exhibit 6)Exhibit 5:New business growth for Chinese life insurers has slowed considerably;weexpect single-digit growth in 2013NBV growth for listed Chinese life insurers since 2008,45%40%35%,40%,30%25%20%15%,2
46、5%,25%,11%,10%,7%,6%,5%,0%,1%,1%,0%,2008,2009,2010,2011,1H12 2H12E 2012E 2013E 2014E,Source:Company data,Goldman Sachs Research estimates.Exhibit 6:Chinese life insurers now trade at an average 2013E P/EV of 1.35X,c.74%of historical average,PricePerf.Since2011,PricePerf.YTD,Current2013E P/EV,Histori
47、calaverage,Historicalaverage excl.peak,Fwd 1 year P/EVAverageduring Economiceconomic troughtrough,Current vs.hist avgexcl.peak,Current vs.avg during Currenteconomic vs.troughtrough,Current Historical2013E NBM average,Historicalaverageexcl.peak,Fwd 1 year NBM(X)Averageduring Economiceconomic troughtr
48、ough,Current vs.hist avgexcl.peak,Current vs.avg during Currenteconomic vs.troughtrough,H share(HK$),China Life(H)Ping An(H)CPIC(H)NCI(H)Taipingaverageavg(excl.NCI&Taiping),-26%-29%-21%5%-44%-23%-25%,24%22%14%5%-3%12%20%,1.551.271.251.010.991.211.35,2.051.961.731.212.371.861.91,1.941.821.731.212.241
49、.791.83,2.061.62NANA1.681.781.84,1.491.03NANA1.251.251.26,-20%-30%-28%-17%-56%-32%-26%,-25%-21%NANA-41%-32%-26%,4%23%NANA-21%-3%8%,8.34.75.10.1(0.2)3.606.04,17.414.013.12.823.414.1214.82,15.411.813.12.820.512.7013.40,17.08.1NANA10.912.0312.58,7.90.4NANA4.04.104.14,-46%-60%-61%-97%-101%-72%-55%,-51%-
50、42%NANA-102%-70%-52%,6%1141%NANA-105%-12%46%,A share(Rmb),China Life(A)Ping An(A)CPIC(A)NCI(A)averageavg(excl.NCI),-13%-30%-18%-14%-19%-21%,5%13%-3%-19%-1%5%,1.480.991.151.051.171.21,2.712.181.731.552.042.21,2.421.861.691.551.881.99,2.031.411.19NA1.541.54,1.740.970.88NA1.201.20,-39%-47%-32%-32%-38%-
