Goldman Sachs·2025-05-28 05:10Investment Rating - The report maintains a "Buy" rating for China Life H, Ping An, and upgrades PICC P&C to "Buy" from "Neutral" [3][7]. Core Insights - Chinese insurers have outperformed the HSI/CSI300 indices since early March, primarily due to fund-flow related factors and expectations of increased inflows into the A-share market [1][8]. - Despite recent share price strength, most insurers are trading at or above 1 standard deviation of their 3-year historical P/B, indicating potential near-term downside risks due to challenging fundamentals [2][8]. - There has been a tangible improvement in shareholder returns, with several insurers announcing stable or progressive dividend targets and considering share buybacks, aligning with government objectives to enhance SOE valuations [3][43]. Summary by Sections Investment Ratings and Price Targets - The report raises FY25E EPS estimates by 3-46% for covered companies, reflecting better-than-expected 1Q25 results and equity market performance [4][56]. - Target prices for PICC P&C are raised to HK$16.10 from HK$12.90, implying a 1.1X FY26E P/B and 9.8X FY26E P/E [4][57]. - Target prices for PICC Group H/A are increased by 20%/11% to reflect new valuations for PICC P&C, while other life insurers see target price increases of 4-10% [4][57]. Market Performance and Valuation - H-share insurers have outperformed since early March by more than 10%, although YTD performance remains relatively unchanged compared to indices [8][9]. - The report notes that long-term bond yields have remained depressed, impacting book value and solvency, with a decline in net investment yield expected due to muted equity market performance [2][25][27]. Shareholder Returns and Capital Management - Several insurers have announced plans for stable or progressive dividends and share buybacks, with PICC P&C positioned to increase shareholder returns due to an excess capital balance of RMB 47 billion as of FY24 [3][43][51]. - China Life is highlighted as having a strong balance sheet but a low current payout ratio, indicating potential for increased shareholder returns [3][43]. Earnings and Profitability Outlook - The report anticipates muted book value growth in 2Q25, with long-term bond yields declining to levels seen at the end of 2024 [27][56]. - Net profit for most life insurers declined in 1Q25, reflecting lower equity investment gains compared to 1Q24, with expectations for small profit growth in 2Q25 but a meaningful year-over-year decline for FY25 [27][38].