1Q25 CoR outperformed

中国财险(02328)\r

PICC P&C reported a strong1Q25earnings alert,with net profit expected to surge80%-100%YoY to RMB10.6bn-11.7bn,implying a QoQ upswing of95.3%-117%vs4Q24(link).1Q25net profit represented more than one-third(33%-37%)of lastyear’s total net profit,driven by1)a largely improved CoR with reduced catastrophicclaims in1Q25;and2)optimized asset allocation structure shifting from the FVTPLto FVOCI,which helped smooth the volatilities from fair value movement to achievesteady investment income growth amid market fluctuations.We estimate the1Q25CoR to arrive at less than95%,and adjust the auto/non-auto CoR to95.9%/99.0%(prev.96.0%/98.9%report)in FY25E,thanks to stringent expensecontrols and an improved non-auto UW structure.For auto,we expect thepremium growth to be driven by the rise of new vehicle sales and a higherpenetration of NEVs;and for non-auto,we pare down FY25E premium growthforecast to6%as the insurer could prioritize profitability to UW expansion,in ourview.On investment,we expect the insurer to steadily increase equity allocation tohigh-yield stocks under FVOCI,on top of the40%growth in FY24,and1Qinvestment income could be bolstered by equity gains and a rebounded bond yield.Maintain BUY,with TP at HK$15.8(unchanged),implying1.19x FY25E P/BV.\r

1Q25CoR improved on narrowed claims.According to the data from MEM*,total direct economic losses from NAT CAT claims amounted to RMB9.3bn in1-2M25(vs1-2M24:RMB20.7bn),down55%YoY,evidenced for a reduced totalamount of P&C claims across the sector.We expect the insurer’s1Q25CoR toland at less than95%,down approx.3pct YoY on top of a high base of97.9%in1Q24,which was dragged by deteriorated catastrophe-induced claims fromfreezing rains.In1Q25,we expect non-auto CoR to trim faster than auto CoR,as the insurer re-addresses on non-auto expense controls and determines toscale down the loss-making lines suchlike the employer’s liability insurance andcredit insurance.Auto CoR could slightly improve with avg.ticket size stabilizedacross peers.We adjust the auto/non-auto CoR forecasts to95.9%/99.0%(prev.96.0%/98.9%)in FY25E,to reflect an improved auto structure tilted tohousehold vehicles,which made up74.3%of FY24auto premiums;and the riskmitigation in non-auto potentially taking more time.\r

Expect1Q25H-share surge to drive investment gains.The insurer hasreallocated investment fund portfolio to FVOCI assets.In FY24,FVTPL/FVOCIassets were down16.6%/up35.3%YoY to make up18%/36%of total portfolio.On equities,stocks in FVOCI/FVTPL increased40%/20%YoY whilst equityfunds were stable to a rise of0.3%YoY,comprising5.8%/1.4%/2.2%of totalinvestment assets by end-FY24.In1Q25,the HSI/HSCEI jumped15%/17%(vs1Q24:-3%/+1%,Fig1),which could enhance the insurer’s equity gains.Beyond that,China’s10YR govt.bond yield rose14.4bps to1.82%in1Q25(vs1Q24:-28bps),driving the growth of bond interests.Looking ahead,weexpect the insurer to steadily edge up allocation to FVOCI stocks and LT govt.bonds to smooth the fair value movement for a stable LT investment income.\r

Valuation and risks.The stock is trading at1.06x FY25E P/B with3yr-forwardROE at13.6%.Considering investment movements,we adjust FY25-27E EPSforecasts by3%/1%/-1%to RMB1.62/1.76/1.91,and remain positive on theinsurer’s UW results to meet the full-year guidance of1)auto/NEV CoR lessthan96%/100%,and2)non-auto CoR less than99%.Maintain BUY,with TPunchanged at HK$15.80based on P/B-ROE,implying1.19x FY25E P/BV.Keyrisks involve deteriorated CoR,and intense equity market volatilities,etc.\r

Source:Company data,Bloomberg,CMBIGM estimates\r

MORE REPORTS FROM BLOOMBERG:RESP CMBROR http://www.cmbi.com.hk\r

Note:the MEM stands for the Ministry of Emergency Management.\r

Key forecasts\r

Current Old Change(pct)\r

Source:Company data,CMBIGM estimates\r

Investment asset portfolio by asset type and YoY%,FY24/FY23Investment assets Mix%