China Pacific Insurance

Relative Value (%) Equity Research April 25, 2014 China Pacific Insurance All ahead of expectation Results Review Maintain BUY results higher than expectation CPIC reported its handsome results, with net profit of Rmb3.2bn (Rmb0.35/sh) up 44.3% YoY and net assets of Rmb103.2bn (Rmb11.39/sh) up 4.3% QoQ. Agency FYP, the key driver of NBV, grew 43.8% YoY. All were ahead of market expectation. Trends to watch Earnings beat on strong premium growth and better cost control. CPIC s 1Q net profit was up 44.3% YoY (27% of our FY14 forecast), due to strong life premium growth of 25.2% and better cost control (e.g. administration expense ratio 11.2% in vs. 13.0% in ). NBV may beat on strong agency FYP growth of 43.8% YoY. Agency FYP in grew by 43.8% YoY despite high base effect, leading the life industry recovery, which shows CPIC s two-focus strategy keeps paying off. We expect CPIC to deliver double-digit NBV growth for FY14. More color will be added after the open day CPIC will hold this May to discuss agency business. P&C premium growth slowed due to quality control. CPIC P&C premium grew 13.2% YoY in ; 2.9ppt lower than industry growth, mainly due to quality control in our view. We expect CPIC to enhance underwriting discipline this year after its aggressive 2013. In addition, we expect its combined ratio to be 100.5% for FY14. The only negative point came from increasing surrenders. CPIC s surrenders grew 37.2% YoY in, with a surrender ratio of 5.8%, 1ppt higher than that in the same period last year. We believe it was mostly from bancassurance and it will be manageable due to its successful business transformation. Earnings revisions We keep our higher-than-consensus NBV forecast unchanged, but we think there is still upside potential. Valuation and recommendation CPIC-A/H is now trading at 0.9/1.1x 2014E P/Life-EV, a very undemanding valuation, on the back of its strong NBV growth prospects. We reiterate BUY rating. Ticker 601601.SH 02601.HK Last close Rmb16.37 HK$25.00 CICC target Rmb26.86 HK$33.99 52wk price range Rmb20.46~14.94 HK$33.50~22.45 Market cap (bn) Rmb158 HK$197 Daily value (mn) Rmb333.04 HK$279.57 Shares outstanding (mn) 6,287 2,775 Free float (%) 36 73 Daily volume (mn sh) 20.05 10.56 Business sector Insurance 130 120 110 100 90 02601.HK HSCEI 80 Apr-2013 Jul-2013 Oct-2013 Jan-2014 Apr-2014 (Rmb mn) 2012A 2013A 2014E 2015E Revenue 167,038 191,816 210,166 238,166 (+/-) 7.7% 14.8% 9.6% 13.3% Net profit 5,077 9,261 11,644 12,556 (+/-) -38.9% 82.4% 25.7% 7.8% EPS 0.56 1.02 1.28 1.39 BPS 10.61 10.92 12.02 13.21 DPS 0.34 0.36 0.41 0.46 EVPS 14.93 15.93 17.94 19.84 P/E 36.1 19.2 15.2 13.9 P/B 1.9 1.8 1.6 1.5 P/EV per share 1.35 1.23 1.09 0.97 Dividend yield 1.7% 1.8% 2.1% 2.4% ROAA 0.8% 1.3% 1.5% 1.5% ROAE 5.9% 9.5% 11.2% 11.0% Source: Bloomberg, company data, CICC Research Shengbo TANG shengbo.tang@cicc.com.cn SFC CE Ref: AYT154 Yu ZHANG yu5.zhang@cicc.com.cn

Figure 1: Fast growth with high quality in agency business 50% 45% CPIC Life premium YoY growth rate 44.1% 8,000 7,000 (Rmb,mn) Agency FYP 7,257 40% 35% 30% 25% 25.2% 6,000 5,000 4,000 5,047 +43.8% 15% 10% 5% 0% 13.8% Life premium FYP Renewable business 3,000 2,000 1,000 0 Figure 2: P&C premium growth benefits from the development of new channel business YoY growth of CPIC P&C insurance 16% 14% 12% 10% 8% 6% 4% 2% 13.2% 15.0% 8.4% 5,000 4,800 4,600 4,400 4,200 4,000 3,800 (Rmb,mn) 19.6% +16.7% 20.2% 19% 0% P&C insurance Auto insurance Non-auto insurance 3,600 19% P&C insurance premium from new channel As % of total P&C insurance premium Figure 3: Increasing surrenders 8,000 7,000 6,000 5,000 Surrenders (Rmb mn) 37.2% 5,172 7,096 6.0% 5.0% 4.0% 4.8% Surrender ratio 1.0% 5.8% 4,000 3.0% 3,000 2.0% 2,000 1,000 1.0% 0 0.0% 2

Figure 4: Quarterly results summary Financial Statements Analysis (Rmb,mn) 13Q1 13Q2 13Q3 13Q4 14Q1 YoY (%) QoQ (%) Operating revenues 53,165 50,903 45,560 43,509 63,720 19.9% 46.5% Gross w ritten premiums 51,421 47,241 39,788 38,473 61,888 20.4% 60.9% Net premiums earned 45,865 41,880 37,404 34,476 55,456 20.9% 60.9% Investment income 7,060 8,776 7,880 8,577 7,808 10.6% -9.0% Other income 240 247 276 456 456 90.0% 0.0% Operating expenses -50,065-47,115-42,065-42,024-59,295 18.4% 41.1% Surrenders -5,172-4,521-5,202-4,888-7,096 37.2% 45.2% Surrneder ratio -4.8% -4.4% -4.4% -4.4% -5.8% -1.0% -1.4% Net claims and policyholders' benefits -11,559-12,967-12,346-15,043-14,158 22.5% -5.9% Net provision for insurance contract reserves -19,969-16,497-12,088-8,881-20,612 3.2% 132.1% Policyholder dividends -968-844 -1,085-1,229-997 3.0% -18.9% Policyholders' benefits and net claims -37,668-34,829-30,721-30,041-42,863 13.8% 42.7% Underwriting and acquisition costs -4,949-4,223-3,748-3,732-6,171 24.7% 65.4% As % of gross written premiums -9.6% -8.9% -9.4% -9.7% -10.0% -0.3% -0.3% Administrative Expenses -5,948-6,078-5,970-6,916-6,216 4.5% -10.1% As % of net earned premiums -13.0% -14.5% -16.0% -20.1% -11.2% 1.8% 8.9% Other expenses -1,500-1,985-1,626-1,335-4,045 169.7% 203.0% Operating profit 3,100 3,788 3,495 1,485 4,425 42.7% 198.0% Profit before income tax 3,114 3,814 3,508 1,478 4,438 42.5% 200.3% Less: Income tax -856-526 -852-285 -1,176 37.4% 312.6% Net profit 2,258 3,288 2,656 1,193 3,262 44.5% 173.4% Net Profit Attributable to Parent Company's Shareholders 2,225 3,239 2,617 1,180 3,211 44.3% 172.1% Total Assets 699,388 721,207 741,349 723,533 780,414 11.6% 7.9% Total liabilities 598,460 623,519 639,059 623,147 675,683 12.9% 8.4% Shareholders equity 100,928 97,688 102,290 100,386 104,731 3.8% 4.3% Equity Attributable to Parent Company's Shareholders 99,482 96,306 100,837 98,968 103,245 3.8% 4.3% EPS (Rmb) 0.25 0.36 0.29 0.13 0.35 42.5% 172.9% BVPS (Rmb) 10.98 10.63 11.13 10.92 11.39 3.8% 4.3% Investment Assets Analysis (Rmb,mn) 13Q1 13Q2 13Q3 13Q4 14Q1 As % Cash and cash equivalent 26,764 26,938 19,433 16,561 23,326 3.2% Trading securities 2,206 1,954 2,356 4,926 6,458 0.9% Securities purchased under agreements to resell 40 1,574 501 2,394 2,153 0.3% Policy loans 6,206 6,873 7,643 8,444 9,486 1.3% Term deposits 167,354 153,992 156,204 144,317 153,292 21.3% Available-for-sale financial assets 139,848 161,520 181,029 175,489 188,320 26.2% Held-to-maturity financial assets 251,374 260,057 263,548 262,942 273,062 38.0% Investments classified as loans and receivables 37,733 38,532 40,953 41,320 50,978 7.1% Investment in associates & joint ventures 11 11 11 11 11 0.0% Restricted statutory deposits 3,600 3,600 3,600 3,600 5,300 0.7% Investement property 6,318 6,888 6,850 6,795 6,739 0.9% Total investment assests 641,454 661,939 682,128 666,799 719,125 100.0% 3

Figure 5: Valuation table (diluted) Company name Closing price (Rmb/HK$) Target price (Rmb/HK$) Upside potential EPS BPS Group EV/shr NBV/shr ROAE(%) 2014-04-24 12A 13A 14E 15E 12A 13A 14E 15E 12A 13A 14E 15E 12A 13A 14E 15E 12A 13A 14E 15E H-share Ping An H Share 58.9 87.0 48% 3.15 4.53 5.44 6.41 25.08 29.40 35.09 42.33 44.92 53.04 64.90 78.89 2.50 2.92 3.39 3.85 13.8 16.4 16.8 16.4 CPIC H Share 25.0 34.0 36% 0.70 1.30 1.65 1.81 13.20 13.91 15.44 17.28 18.57 20.29 23.04 25.95 0.95 1.04 1.20 1.37 5.9 9.5 11.2 11.0 CTIH 12.8 19.0 49% 0.69 0.78 1.18 1.33 8.61 8.14 10.13 11.42 11.71 19.02 18.93 22.01 0.61 1.20 1.15 1.33 9.4 8.5 12.8 12.4 China Life H Share 20.8 25.3 22% 0.49 1.11 1.37 1.60 9.73 9.88 11.07 12.60 14.86 15.35 17.64 20.40 0.92 0.96 1.03 1.12 5.4 11.2 13.0 13.4 PICC Group 3.0 3.7 22% 0.24 0.24 0.32 0.32 1.92 2.14 2.79 3.21 2.69 2.47 3.16 3.67 0.13 0.10 0.10 0.11 14.1 11.9 13.1 10.5 PICC P&C 10.6 10.2-4% 1.01 1.01 1.05 0.98 4.61 5.36 6.17 6.92 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 25.8 20.5 18.1 14.9 Simple Average 12.4 13.0 14.2 13.1 A-share Ping An A Share 39.5 68.7 74% 2.53 3.56 4.23 4.90 20.16 23.08 27.31 32.36 36.11 41.64 50.52 60.31 2.01 2.29 2.64 2.94 13.8 16.4 16.8 16.4 CPIC A Share 16.4 26.9 64% 0.56 1.02 1.28 1.39 10.61 10.92 12.02 13.21 14.93 15.93 17.94 19.84 0.77 0.81 0.94 1.05 5.9 9.5 11.2 11.0 China Life A Share 13.9 20.0 44% 0.39 0.88 1.06 1.23 7.82 7.80 8.62 9.63 11.94 12.11 13.73 15.60 0.74 0.75 0.81 0.86 5.4 11.2 13.0 13.4 Simple Average 8.3 12.4 13.7 13.6 Company name Market Cap. Shares (Rmb/HK$ mn) outstanding A/H premium PE (X) PB (X) Group P/EV NBM Life business P/EV 12A 13A 14E 15E 12A 13A 14E 15E 12A 13A 14E 15E 12A 13A 14E 15E 12A 13A 14E 15E H-share Ping An H Share 465,865 7,916 18.7 13.0 10.8 9.2 2.35 2.00 1.68 1.39 1.31 1.11 0.91 0.75 5.6 2.0 (1.8) (5.2) 1.50 1.18 0.85 0.58 CPIC H Share 226,550 9,062 35.9 19.2 15.1 13.8 1.89 1.80 1.62 1.45 1.35 1.23 1.08 0.96 6.8 4.5 1.6 (0.7) 1.56 1.35 1.12 0.95 CTIH 31,056 2,430 18.4 16.5 10.9 9.6 1.48 1.57 1.26 1.12 1.09 0.67 0.68 0.58 1.8 (5.2) (5.3) (6.9) 1.14 0.64 0.66 0.56 China Life H Share 586,493 28,265 42.6 18.7 15.2 12.9 2.13 2.10 1.87 1.65 1.40 1.35 1.18 1.02 6.4 5.6 3.0 0.3 1.40 1.35 1.18 1.02 PICC Group 128,545 42,424 12.5 12.5 9.4 9.5 1.58 1.42 1.09 0.94 1.13 1.23 0.96 0.83 2.7 5.6 (1.3) (5.9) 1.47 1.65 0.87 0.46 PICC P&C 143,932 13,604 10.5 10.5 10.1 10.7 2.29 1.97 1.72 1.53 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Simple Average 23.1 15.1 11.9 11.0 1.96 1.81 1.54 1.35 1.25 1.12 0.96 0.83 4.6 2.5 (0.8) (3.7) 1.41 1.23 0.94 0.71 A-share Ping An A Share 312,846 7,916-14% 15.6 11.1 9.3 8.1 1.96 1.71 1.45 1.22 1.09 0.95 0.78 0.66 1.7 (0.9) (4.2) (7.1) 1.15 0.92 0.64 0.43 CPIC A Share 148,345 9,062-16% 29.2 16.0 12.7 11.8 1.54 1.50 1.36 1.24 1.10 1.03 0.91 0.83 1.9 0.5 (1.7) (3.3) 1.16 1.04 0.87 0.76 China Life A Share 393,162 28,265-14% 35.5 15.9 13.1 11.3 1.78 1.78 1.61 1.44 1.16 1.15 1.01 0.89 2.7 2.4 0.2 (2.0) 1.16 1.15 1.01 0.89 Simple Average 26.8 14.3 11.7 10.4 1.76 1.67 1.47 1.30 1.12 1.04 0.90 0.79 2.1 0.7 (1.9) (4.1) 1.16 1.04 0.84 0.69 Source: Company data, Bloomberg, CICC Research Note: Based on the closing price on April 24 4

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Beijing Shanghai Hong Kong Corporation Limited 28 th Floor, China World Office 2 1 Jianguomenwai Avenue Beijing 100004, P.R. China Tel: (86-10) 6505-1166 Fax: (86-10) 6505-1156 Corporation Limited Shanghai Branch 32 nd Floor Azia Center 1233 Lujiazui Ring Road Shanghai 200120, P.R. China Tel: (86-21) 5879-6226 Fax: (86-21) 5888-8976 Corporation (Hong Kong) Limited 29 th Floor, One International Finance Centre 1 Harbour View Street Central, Hong Kong Tel: (852) 2872-2000 Fax: (852) 2872-2100 Singapore Corporation (Singapore) Pte. Limited #39-04, 6 Battery Road Singapore 049909 Tel: (65) 6572-1999 Fax: (65) 6327-1278 United Kingdom Corporation (UK) Limited Level 25, 125 Old Broad Street London EC2N 1AR, United Kingdom Tel: (44-20) 7367-5718 Fax: (44-20) 7367-5719 Beijing Jianguomenwai Avenue Branch Shanghai Middle Huaihai Road Branch Shenzhen Fuhuayilu Branch 1 st Floor, Capital Tower 6A Jianguomenwai Avenue 398 Huaihai Road (M) Shanghai 200020, P.R. China Rooms 107 & 201, Annex Building Shenzhen Duty Free Commercial Tower Beijing 100022, P.R. China Tel: (86-21) 6386-1195 6 Fuhua 1 st Road, Futian District Tel: (86-10) 8567-9238 Fax: (86-21) 6386-1180 Shenzhen 518048, P.R. China Fax: (86-10) 8567-9235 Tel: (86-755) 8832-2388 Fax: (86-755) 8254-8243 Hangzhou Jiaogong Road Branch Nanjing Zhongshan Road (North) Branch Guangzhou Tianhe Road Branch 1 st Floor, Euro American Center 18 Jiaogong Road Hangzhou 310012, P.R. China 2 nd Floor, Greenland Plaza 1 Zhongshan Road (North) Nanjing 210008, P.R. China 40 th Floor, Teemtower 208 Tianhe Road Guangzhou 510620, P.R. China Tel: (86-571) 8849-8000 Tel: (86-25) 8316-8988 Tel: (86-20) 8396-3968 Fax: (86-571) 8735-7743 Fax: (86-25) 8316-8397 Fax: (86-20) 8516-8198 Chengdu Binjiang Road (East) Branch Xiamen Lianyue Road Branch Qingdao Middle Hongkong Road Branch 1 st & 16 th Floors, Shangri-La Center Block 9B, Binjiang Road (East) Chengdu 610021, P.R. China 4 th Floor, Office Building, Paragon Center 1 Lianyue Road, Siming District Xiamen 361012, P.R. China 11 th Floor, Shangri-La Center Block 9, Hongkong Road (M), South District Qingdao 266071, P.R. China Tel: (86-28) 8612-8188 Tel: (86-592) 515-7000 Tel: (86-532) 6670-6789 Fax: (86-28) 8444-7010 Fax: (86-592) 511-5527 Fax: (86-532) 6887-7018 Wuhan Jiefang Road Branch Chongqing Honghu Road (West) Branch Changsha Chezhan Road (North) Branch 4 th Floor, New World Centre Tower 634 Jiefang Road, Qiaokou District Wuhan 430032, P.R. China 1 st & 10 th Floors, Ourui Lanjue Center Block 9, Honghu Road (W), New North District Chongqing 401120, P.R. China 3 rd Floor, Annex Building, Securities Tower 459 Chezhan Road (North), Furong District Changsha 410001, P.R. China Tel: (86-27) 8334-3099 Tel: (86-23) 6307-7088 Tel: (86-731) 8878-7088 Fax: (86-27) 8359-0535 Fax: (86-23) 6739-6636 Fax: (86-731) 8446-2455 Foshan Jihua 5 th Road Branch Tianjin Nanjing Road Branch Dalian Jinma Road Branch 12 th Floor, Trend International Business Building 2 Jihua 5 th Road, Chancheng District Foshan 528000, P.R. China 10 th Floor, Tianjin Global Trading Center 219 Nanjing Road, Heping District Tianjin 300051, P.R. China 128B Jinma Road Economic-Technological Development Area Dalian 116000, P.R. China Tel: (86-757) 8290-3588 Tel: (86-22) 2317-6188 Tel: (86-411) 8755-5088 Fax: (86-757) 8303-6299 Fax: (86-22) 2321-5079 Fax: (86-411) 8801-7568 Ningbo Yangfan Road Branch 11 th Floor, Building Five, 999 Yangfan Road Hi-tech Industrial Development Zone Ningbo 315103, P.R. China Tel: (86-574) 8907-7288 Fax: (86-574) 8907-7328