Better FY13 Results in Life than P&C, Maintain Accumulate

Transcription

1 CPIC 中 国 太 保 (2601 HK) Apr-13 May-13 Jul-13 Aug-13 Aug-13 Sep-13 Oct-13 Oct-13 Nov-13 Jan-14 Feb-14 Mar-14 Mar-14 Apr-14 GTJA Research 国 泰 君 安 研 究 Company Report: CPIC (02601 HK) Dayton Wang 王 庆 鲁 公 司 报 告 : 中 国 太 保 (02601 HK) [email protected] Better FY13 Results in Life than P&C, Maintain Accumulate 13 财 年 寿 险 表 现 优 于 财 产 险, 维 持 收 集 CPIC FY13 results wrap: consistent business strategy in life insurance, P&C lagging behind. The Company kept an agency-focused strategy in its life insurance business, that first-year premiums ( FYP ) from agency channel saw a 10.4% yoy increase on the ground of improved agents productivity. Change in actuarial assumptions resulted an annual growth of 6.2% in life insurance NBV, lower than our estimate of 9.2%. New business margin ( NBM ) saw a 2.9 ppts improvement to 20.7% due to more high-margin products sold through agency channel. FY13 overall combined ratio of CPIC P&C surged to 99.5% with underwriting losses incurred during 2H13. Full-year combined ratio came in higher than our estimate of 98.1% due to worse-than-expected performance of commercial property insurance. We believe that current low price level environment and continued proliferation of the internet economy will help to bring down 1H14 overall combined ratio. We lower our 2014 EPS forecast to RMB and maintain TP of HKD per share by applying a 6.8% discount to the SOTP based appraisal value of HKD per share. Current undemanding market valuation of CPIC shares lead to an unchanged investment rating of Accumulate. 中 国 太 保 ( 公 司 )13 财 年 业 绩 小 结 : 保 持 一 贯 的 寿 险 业 务 策 略, 财 产 险 表 现 则 稍 显 逊 色 公 司 继 续 保 持 着 聚 焦 个 险 渠 道 的 寿 险 经 营 策 略, 其 个 险 渠 道 首 年 保 费 因 代 理 人 产 能 的 提 升 而 同 比 上 升 10.4% 基 于 精 算 假 设 的 改 变, 寿 险 新 业 务 价 值 同 比 增 长 6.2%, 低 于 我 们 9.2% 的 预 测 值 更 多 通 过 个 险 渠 道 销 售 的 高 利 润 产 品 造 成 新 业 务 价 值 利 润 率 同 比 提 升 2.9 个 百 分 点 至 20.7% 13 财 年 财 产 险 综 合 成 本 率 上 升 至 99.5%,13 年 下 半 年 产 生 承 保 亏 损 因 逊 于 预 期 的 企 业 财 产 保 险 表 现, 全 年 综 合 成 本 率 好 于 我 们 98.1% 的 预 测 值 但 我 们 相 信 目 前 较 低 的 价 格 水 平 和 不 断 发 展 互 联 网 经 济 有 助 于 公 司 降 低 14 年 中 期 的 综 合 成 本 率 我 们 下 调 2014 年 每 股 盈 利 预 测 至 人 民 币 元, 同 时 维 持 港 元 的 目 标 价 ( 给 予 基 于 分 部 加 总 方 法 得 出 的 每 股 港 元 评 估 价 值 6.8% 的 折 让 ) 我 们 参 考 目 前 市 场 给 予 公 司 的 估 值 水 平 维 持 收 集 的 投 资 评 级 Rating: Accumulate Maintained 评 级 : 收 集 ( 维 持 ) 6-18m TP 目 标 价 : HK$31.50 Revised from 原 目 标 价 : HK$31.50 Share price 股 价 : Stock performance 股 价 表 现 % % 1 5.0% -5.0% % Change in Share Price 股 价 变 动 2601 HK HSI Index 1 M 1 个 月 3 M 3 个 月 HK$ Y 1 年 Abs. % 绝 对 变 动 % (1.2) (12.8) (7.2) Rel. % to HS index 相 对 恒 指 变 动 % (6.5) (11.1) (12.8) Avg. share price(hk$) 平 均 股 价 ( 港 元 ) Source: Bloomberg, Guotai Junan International Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年 结 收 入 股 东 净 利 每 股 净 利 每 股 净 利 变 动 市 盈 率 每 股 净 资 产 市 净 率 每 股 股 息 股 息 率 净 资 产 收 益 率 12/31 (RMB m) (RMB m) (RMB) ( %) (x) (RMB) (x) (RMB) (%) (%) 2012A 167,157 5, (39.2) A 192,217 9, E 201,404 10, E 222,288 11, E 248,699 13, Shares in issue (m) 总 股 数 (m) 9,062.0 Major shareholder 大 股 东 Bao Steel 14.9% Market cap. (HK$ m) 市 值 (HK$ m) 228,362.4 Free float (%) 自 由 流 通 比 率 (%) month average vol. 3 个 月 平 均 成 交 股 数 ( 000) 9,684.6 P/14 EV/ 14 年 P/EV ( 基 于 收 盘 价 ) 1.0 x 52 Weeks high/low (HK$) 52 周 高 / 低 / Est. FY14 NAV (HK$) 每 股 14 年 估 值 (HK$) See the last page for disclaimer Page 1 of 10

2 CPIC FY13 Result Wrap: Consistent Business Strategy In Life Insurance, P&C Lagging Behind CPIC released its FY13 financial results on March 28 with a headline EPS of RMB 1.02, up 72.9% yoy, which was in-line with the guided 70% stated in the positive profit alert. The Company s FY13 results were significantly improved on a yoy basis due to the recovery of its life insurance business, which recorded a segmental net profit of RMB 6.2 billion, up 149.3% yoy. In comparison, the net profit of its P&C insurance business experienced a 1.4% yoy drop due to higher-than-expected combined ratio during 2H13. First-year premiums ( FYP ) from agency channel saw a 10.4% yoy increase on the ground of improved agents productivity. 60.9% of life insurance gross written premiums ( GWP ) were generated from the Company s agency channel, which the proportion increased by 6.4 ppts compared to FY12. Regarding the new sales, FYP from agency channel increased by 10.4% to RMB 13.0 billion, which accounted for 38.2% of the total FYP from all channels (vs. 31.5% in FY12). Agents productivity also improved by 6.2% in 2013, where average monthly FYP per agent reached to RMB 3,795. We believe this consist agency-channel-focused sales strategy is a key completive edge of CPIC over other listed peers; especially the bancassurance channel is expected to undergo structural changes. Its GWP from bancassurance channel continued to slide as we expected, which recorded an 11.2% yoy drop to RMB 30.1 billion. However renewal premiums had gained further weight in the total premiums from bancassurance channel, which carried 49.8%, compared that of 47.2% in 2012, suggesting an early sign of product offering changes through the channel. Figure-1: CPIC s FYP of life insurance yoy growth Agency Banncassuance Direct & New channels (2) (4) (6) 2009A 2010A 2011A 2012A 2013A Figure-2: CPIC s FYP of life insurance breakdown by sales channel Direct & New channels Banncassuance Agency 2009A 2010A 2011A 2012A 2013A Figure-3: CPIC s fist-year regular premiums of life insurance yoy growth (10) Agency Banncassuance Direct & New channels 2009A 2010A 2011A 2012A 2013A Figure-4: CPIC s fist-year regular premiums of life insurance breakdown by sales channel Direct & New channels Agency Banncassuance 2009A 2010A 2011A 2012A 2013A CPIC achieved an annual growth of 6.2% in life insurance NBV, which missed our earlier forecast of 9.2%. However this headline growth rate had incorporated actuarial assumption changes that mainly consisted of tax rate and risk discount rate adjustments (lowering risk discount rate to 11.0% from 11.5%). These actuarial assumption changes had negative impacts on NBV with a magnitude of approximately RMB 300 million. If we apply the same set of assumptions as in FY12, then the Company would have reported a 10.6% yoy gain in NBV. Regarding the NBV contribution, its agency channel See the last page for disclaimer Page 2 of 10

3 continued to be the greatest attribution to the total NBV, which contributed 82.1% (78.7% in FY12) in 2013; whereas NBV from bancassurance channel kept almost flat at RMB 923 million (up 0.3% yoy), accounting for 12.3% of the total NBV. In addition, new business margin ( NBM ) saw a 2.9 ppts improvement to 20.7% due to more high-margin products sold through agency channel Figure-5: CPIC s life insurance NBV breakdown by sales channel Figure-6: CPIC s life insurance NBV yoy growth 10 Agency channel Direct sales Bancassurance 12.0% 1 8.0% 6.2% % 82.1% 6.0% 4.0% 2.0% 2012A 2013A 2012A 2013A 2014E 2015E 2016E Overall combined ratio of CPIC P&C surged to 99.5% with underwriting losses incurred during 2H13. Despite CPIC achieved higher than expected net written premiums for its P&C insurance (RMB 66.0 billion vs.rmb 61.6 billion, above our expectation by 7.1%), the Company reported an overall full-year combined ratio of 99.5% for its P&C insurance business, which was worse than our estimate of 98.1%. What beyond our expectation was that the Company made significant underwriting losses in commercial property insurance, it was mainly due to major natural disaster of Typhoon Fitow that took place last September. The combined ratio for its auto insurance during 2H13 kept flat compared to 1H13 at 99.8% on the grounds of increased costs of labor and auto parts. Figure-7: CPIC s semi annual P&C insurance underwriting profits by products (100) (200) (300) (400) (RMB mn) Auto Commercial prop 1H13 2H13 Liability Accident Cargo Figure-8: CPIC s calculated semi annual overall combined ratio of P&C insurance 105.0% % 9 1H 2H 2009A 2010A 2011A 2012A 2013A Near-Term Outlook: Life To Continue Outperform P&C We believe CPIC Life has less exposure on high cash value products and is less reliant on bancassurance channel, which implies its value-focused life insurance business strategy remains unchanged. CPIC did not recorded shiny yoy growth figure compared to listed peers during the premiums surge period in January, which we reason the Company chose not to push up the sales by high cash value products. On the hand other hand, the Company has shown some initiative to reshape its bancassurance channel to become a more value contributor. More than 70% of its bancassurance NBV in 2013 came from the sales of high margin (> 40% measured by Annual Premiums Equivalent ( APE )) regular premiums products. Although we continue to expect the bancassurance channel will have less weight in GWP, its contribution to NBV is expected to increase if the Company continues to implement changes of product portfolio for the bancassurance channel. In this light, the recently launched new bancassurance sales can even be positive to CPIC s life insurance business. See the last page for disclaimer Page 3 of 10

4 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Sep-13 Mar-14 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Sep-13 Mar-14 Figure-9: Monthly life insurance premiums yoy growth in January Figure-10: CPIC s life GWP breakdown by sales channel 20 Direct sales & New channels Banncassuance Agency % 4 China Life Ping An Life New China CPIC Life Life Taiping Life A 2013A 2014E 2015E 2016E Source: CIRC, Guotai Junan International. Figure-11: CPIC s 1Q14 new sales from agency channel yoy growth Figure-12: CPIC s 1Q14 new sales from bancassurance channel yoy growth 8 6 Reported new sales from agency channel yoy 5 40 Reported new sales from bancassurance channel yoy China Life Ping An Life CPIC Life New China China Life Ping An Life CPIC Life New China Life Life Source: Shanghai Securities News, Guotai Junan International. Source: Shanghai Securities News, Guotai Junan International. Current low price level environment and continued proliferation of the internet economy will help to bring down 1H14 overall combined ratio. The automobile related CPI continued to be tame as we stepped into 2014; the Company s pressure on claims could be alleviated to some extent by low price level environment. In addition, we have noticed that new channels (including telephone and internet sales) had contributed more to the total P&C insurance GWP in GWP from new channels in 2013 were RMB 16.7 billon, up 20.4% yoy. As we believe advanced e-commerce will bring greater benefits to P&C insurance than life insurance, we expect the Company s expense ratio will be under control 1H14. Figure-13: CPI yoy and vehicle usage and maintenance CPI Figure-14: CPI yoy and fuel and auto parts CPI (%) CPI yoy Vehicle usage and maintenance CPI (%) CPI yoy (LHS) (%) Fuel and auto parts CPI (RHS) (5.0) (10.0) Source: National Bureau of Statistics of China, Guotai Junan International. Source: National Bureau of Statistics of China, Guotai Junan International. See the last page for disclaimer Page 4 of 10

5 Figure-15: CPIC s expense and loss ratio of P&C insurance Figure-16: CPIC s net profits of P&C insurance 12 Expense ratio Loss ratio 4,000 (RMB mn) 3, ,500 3, ,000 2,500 2,659 2,622 2,862 2, A 2013A 2014E 2015E 2016E 2012A 2013A 2014E 2015E 2016E Earnings Revision, Valuation And Investment Recommendation We have lowered our EPS forecast for 2014 by 21.8% to RMB to reflect respective challenges of life and P&C insurance. The most apparent concern on CPIC s life insurance accounting profitability remains in surrenders, which the Company recorded a 60.6% yoy increase in Other investment instruments such as commercial banks WMPs and internet finance are expected to continue to bring substitution effects to investment oriented insurance policies. In addition, high cash value polices inherently assumed higher surrender rates, in this regard, we project surrenders will continue to weigh on CPIC Life s headline profits and thus have lift the forecasts regarding total benefits and claims. As for CPIC P&C insurance business, we have lowered the net profit of this segment by 7.6% to incorporate FY13 s higher-than-expected auto combined ratio. We have revised up the investment for 2014 by 6.6% to show our expectation that the Company will seek more positions on debt investment plans. Table-1: Earning revision on CPIC in RMB mn New Old % 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E Gross written premiums : Life 103, , , , ,890 n.a. (1.6%) (0.6%) n.a. Net written premiums: P&C 70,495 81,106 93,510 70,981 81,504 n.a. (0.7%) (0.5%) n.a. Investment income 31,043 33,245 37,027 29,132 33,471 n.a. 6.6% (0.7%) n.a. Net profit for the year 10,372 11,222 13,788 13,203 13,719 n.a. (21.4%) (18.2%) n.a. EPS basic (RMB) n.a. (21.8%) (18.6%) n.a. Source: Guotai Junan International. Our Sum-of-the-parts ( SOTP ) valuation yields an appraisal value per CPIC s share of HKD based on revised financial forecasts; we maintain a target price of HKD per share that represents a 6.8% discount to the appraisal value. Our target price translates into a 2.2x 2014 PBR and a 21.5x 2014 PER based our projected financials of the Company. As we believe current market valuation of CPIC is undemanding, we maintain our Accumulate investment rating on the Company s shares. Risk Factors 1) Potential A/H share price convergence. CPIC s H-shares have been trading at a premium over its A-shares, once the direct trading between Shanghai and Hong Kong has become effective, the premiums may disappear that could cause downside price risk on CPIC s H-shares. 2) Higher than expected combined ratio for CPIC s P&C insurance business. We think CPIC s P&C insurance business looks more vulnerable than its life insurance business, a higher than expected combined ratio, especially in its auto insurance business may lead to changes of outlook given an already stiff competition. See the last page for disclaimer Page 5 of 10

6 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Aug-13 Oct-13 Feb-14 Apr-14 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Aug-13 Oct-13 Feb-14 Apr-14 Table-2: Sum-of-the-parts valuation on CPIC in mn except per share data 2013A 2014E 2015E 2016E Embedded value of life A 97, , , ,183 New business value B 7,499 8,025 8,739 9,573 NBV multiplier C 6.00 x 6.00 x 6.00 x 6.00 x CPIC's shares in CPIC Life D 98.3% 98.3% 98.3% 98.3% Valuation of life insurance business E = (A+B*C)*D 139, , , ,765 Net assets of P&C insurance business F 25,055 25,233 26,356 29,008 Assumed P/B multiple G 1.55 x 1.55 x 1.55 x 1.55 x Valuation of P&C insurance business H = F*G 38,835 39,111 40,852 44,963 Net assets of Corporate & Other I 36,479 36,878 38,519 42,396 Assumed P/B multiple J 1.00 x 1.00 x 1.00 x 1.00 x Valuation of Corporate & Other K = I*J 36,479 36,878 38,519 42,396 Aggregate value of CPIC group (in RMB) L = E+H+K 215, , , ,123 Assumed exchange rate M Aggregate value of CPIC group (in HKD) N = L / M 279, , , ,459 Shares outstanding O 9,062 9,062 9,062 9,062 Value per share (in HKD) P = N / O Source: Guotai Junan International. Figure-17: CPIC s Historical P/B Figure-18: CPIC s 12M Forward P/B 3.5 (x) Historical P/B Avg +1 S.D. -1 S.D. 2.5 (x) Forward P/B Avg +1 S.D. -1 S.D Source: Bloomberg, Guotai Junan International. Note: Start period = Jul 2010 Price as of April 22, 2014 Source: Bloomberg, Guotai Junan International. Note: Start period = Jul 2010 Price as of April 22, 2014 See the last page for disclaimer Page 6 of 10

7 Table-3: Peers Comparison Ticker Insurer Name Price Latest price Market Cap P/E P/B Crny (Local) (in USD mn) FY13A FY14E FY15E FY16E FY13A FY14E FY15E FY16E 2628 HK China Life Ins-H HKD , HK Ping An Insura-H HKD , HK Aia Group Ltd HKD , HK Manulife Fin HKD , HK China Pacific-H HKD , HK Picc Group-H HKD , HK Picc Property & HKD , HK New China Life-H HKD , HK China Taiping In HKD , HK listed simple avg 32, HK listed M.W. avg 45, CH China Life Ins-A CNY , CH China Pacific-A CNY , CH Ping An Insura-A CNY , CH New China Life-A CNY , China listed simple avg 39, China listed M.W. avg 52, JT Tokio Marine Hd JPY 3, , JT Ms&Ad Insurance JPY 2, , JT Dai-Ichi Life JPY 1, , KS Samsung Life Ins KRW 98, , KS Samsung Fire & M KRW 238, , KS Hanwha Life Insu KRW 7, , KS Dongbu Insurance KRW 55, , TT Cathay Financial TWD ,598 n.a n.a. 1.7 n.a. n.a TT Shin Kong Financ TWD 9.6 2,944 n.a n.a. 0.7 n.a. n.a. GE SP Great East Hold SGD , QBE AU Qbe Insurance AUD ,776 n.a AMP AU Amp Ltd AUD , Rest of Asia Simple average 12, RoA M.W. average 15, CS FP Axa EUR , PRU LN Prudential Plc GBP 1, , ZURN VX Zurich Insurance CHF , SREN VX Swiss Re Ag CHF , LGEN LN Legal & Gen Grp GBP , OML LN Old Mutual Plc GBP ,645 1, AV/ LN Aviva Plc GBP , SL/ LN Standard Life GBP , EU simple avg 33, EU M.W.avg 42, AIG US American Interna USD , SPG US Simon Property USD , MET US Metlife Inc USD , TRV US Travelers Cos In USD , AMT US American Tower C USD , ACE US Ace Ltd USD , PSA US Public Storage USD , AFL US Aflac Inc USD , US simple avg 42, US M.W. avg 48, World simple avg 25, World M.W. avg 41, Source: Bloomberg, Guotai Junan International. Price as of April See the last page for disclaimer Page 7 of 10

8 Financial Statements and Key Ratios Income Statement Cash Flow Statement Year end Dec (Rmb mn) 2012A 2013A 2014E 2015E 2016E Year end Dec (Rmb mn) 2012A 2013A 2014E 2015E 2016E Gross written premiums 163, , , , ,297 Operating Activities Less: Premiums ceded to reinsurers (11,795) (15,295) (25,890) (29,399) (33,761) Cash flow from operation 53,368 47,237 58,971 79,368 84,858 Net written premiums 151, , , , ,536 Income Tax Paid (1,244) (2,123) (2,757) (2,983) (3,665) Net unearned premium reserves chg (3,594) (2,003) (2,300) (2,800) (3,000) Net CFO 52,124 45,114 56,214 76,385 81,193 Net premiums earned 147, , , , ,536 Investing Activities Investment income 18,060 30,972 31,043 33,245 37,027 Net purchase of PPE (3,001) (3,606) (3,304) (3,455) (3,379) Other operating income 1,258 1, ,136 Purchases Of Investments, Net (91,693) (48,108) (53,476) (75,757) (87,347) Other income 19,318 32,592 31,901 34,112 38,163 Interest Received 21,848 29,540 28,992 31,260 34,695 Total income 167, , , , ,699 Dividends Received 1,854 2,553 2,651 2,585 2,905 Others 0 (389) Net policyholders benefits and claims: (118,817) (133,259) (135,406) (149,938) (166,289) Net CFI (70,992) (20,010) (25,137) (45,367) (53,127) Finance costs (2,288) (2,755) (3,248) (3,265) (3,249) Financing Activities Interest credited to investment contracts (1,715) (1,924) (2,050) (2,196) (2,445) Securities sold / repurchase 17,943 (24,908) (25,655) (26,425) (27,218) Other expenses (38,224) (42,365) (47,572) (52,684) (59,263) Proceeds from issuance of shares 8, Total benefits, claims and expenses (161,044) (180,303) (188,276) (208,083) (231,247) Repayment of borrowings 0 (2) Profit before tax 6,113 11,914 13,129 14,205 17,453 Issuance of subordinated debt 7, , Income tax (983) (2,519) (2,757) (2,983) (3,665) Repayment of subordinated debt Net profit for the year 5,130 9,395 10,372 11,222 13,788 Interest paid (1,768) (2,440) (3,120) (3,120) (3,120) Dividends paid (3,081) (3,231) (3,625) (3,444) (3,444) Attributable to: Others (12) Equity holders of the parent 5,077 9,261 10,216 11,053 13,581 Net CFF 28,896 (30,581) (28,400) (32,988) (33,781) Minority interests Forex adjustments (4) (178) Net change in cash 10,024 (5,655) 2,676 (1,971) (5,715) EPS (Basic) Beginning Cash 14,966 24,990 19,335 22,011 20,041 End Cash 24,990 19,335 22,011 20,041 14,325 Balance Sheet Year end Dec (Rmb mn) 2012A 2013A 2014E 2015E 2016E Fixed income investments 533, , , , ,907 Equity investment 62,715 75,129 76,356 85,205 96,342 Investment properties 6,349 6,795 7,268 8,850 11,610 Cash and cash equivalents 24,990 19,335 22,011 20,041 14,325 Total investment assets 627, , , , ,185 Other assets 54,174 56,734 50,756 35,773 28,996 Total assets 681, , , , ,181 Life insurance liabilities 387, , , , ,593 P&C insurance liabilities 51,213 57,775 64,130 70,999 78,522 Total insurance liabilities 438, , , , ,115 Investment contracts liabilities 41,754 34,443 36,062 37,865 40,137 Subordinated debts 15,500 15,500 19,500 19,500 19,500 Other liabilities 87,792 70,668 44,158 6,021 (27,839) Total liabilities 583, , , , ,913 Equity Issued capital 9,062 9,062 9,062 9,062 9,062 Reserves 67,519 64,612 64,956 68,434 76,123 Retained profits 19,596 25,294 25,653 26,610 29,398 Shareholders equity 96,177 98,968 99, , ,583 Minority interests 1,392 1,418 1,510 1,602 1,686 Total Equity 97, , , , ,268 See the last page for disclaimer Page 8 of 10

9 Financial Statements and Key Ratios (Continued) Key Financial Ratios in RMB mn, unless stated otherwise 2012A 2013A 2014E 2015E 2016E Life Insurance Operation Gross written premiums 93,461 95, , , ,617 First-year premiums 37,333 33,939 36,981 39,545 43,319 Annual premiums equivalent 17,367 17,257 18,003 19,679 21,323 GWP yoy% 0.3% 1.8% 9.0% 8.2% 9.3% FYP yoy% (20.5%) (9.1%) 9.0% 6.9% 9.5% APE yoy % (1) (0.6%) 4.3% 9.3% 8.4% NBV margin (FYP) 17.8% 20.7% 21.7% 22.1% 22.1% NBV margin (APE) 40.7% 43.5% 44.6% 44.4% 44.9% Solvency margin - Life 210.5% 191.4% 169.6% 146.1% 128.7% P&C Insurance Operation Net premiums earned 56,010 66,001 70,495 81,106 93,510 Claims incurred (34,276) (43,584) (46,527) (53,368) (61,343) NPE yoy% 20.5% 17.8% 6.8% 15.1% 15.3% Claims yoy % 25.9% 27.2% 6.8% 14.7% 14.9% Claims ratio 61.2% 66.0% 66.0% 65.8% 65.6% Expense ratio 34.9% 33.9% 33.2% 33.3% 33.2% Combined ratio 96.1% 99.9% 99.2% 99.1% 98.8% Solvency margin - P&C 188.3% 162.2% 204.2% 185.4% 177.0% Investment Interest income from fixed income investments 24,646 28,398 28,992 31,260 34,695 Dividend income from equity securities 1,852 2,554 2,651 2,585 2,905 Rental income from investment properties Net investment income 26,878 31,408 32,080 34,356 38,264 Cal. yield on debts 5.0% 5.2% 4.9% 4.8% 4.8% Cal. yield on equities 3.2% 3.7% 3.5% 3.2% 3.2% Cal. rental yield 5.9% 6.9% 6.2% 6.3% 6.5% Cal. Investment yield 4.8% 5.0% 4.8% 4.6% 4.6% Investment assets 627, , , , ,185 Investment assets yoy% 20.1% 6.3% 8.5% 10.4% 10.6% Other ratios ROAA 0.8% 1.3% 1.4% 1.4% 1.6% ROAE 5.8% 9.4% 10.1% 10.7% 12.2% Solvency margin - Group 311.7% 282.8% 269.5% 251.3% 244.7% Valuation Embedded value (group) 135, , , , ,327 Group EV yoy% 19.1% 6.7% 16.6% 20.2% 22.2% New Business Value 7,060 7,499 8,025 8,739 9,573 NBV yoy% 5.2% 6.2% 7.0% 8.9% 9.5% Group EV per share NBV per share BVPS DPS P / EPS 33.7 x 19.0 x 17.2 x 15.9 x 12.9 x P / EV (Group) 1.3 x 1.2 x 1.0 x 0.9 x 0.7 x P / B 1.9 x 1.8 x 1.8 x 1.7 x 1.5 x TP / EPS 42.2 x 23.8 x 21.5 x 19.9 x 16.2 x TP / EV (Group) 1.7 x 1.5 x 1.3 x 1.1 x 0.9 x TP / BVPS 2.3 x 2.2 x 2.2 x 2.1 x 1.9 x Price as of April 22, 2014 See the last page for disclaimer Page 9 of 10

10 Company Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Buy Relative Performance >15%; or the fundamental outlook of the company or sector is favorable. Accumulate Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable. Sell Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable. Sector Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform Relative Performance >5%; or the fundamental outlook of the sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform Relative Performance <-5%; or the fundamental outlook of the sector is unfavorable. DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for Shandong Chenming Paper Holdings Limited-H shares (01812), China All Access (Holdings) Limited (00633) and China U-Ton Holdings Limited (08232), Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Ju nan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services and etc. (for example, the placing agent, lead manager, s ponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its r elated risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen s Road Central, Hong Kong. Tel.: (852) Fax: (852) Website: See the last page for disclaimer Page 10 of 10