On Oct 17, 2013, we downgraded our recommendation on
China Life Insurance Co. Ltd
) to Neutral as increasing competition on the domestic front and
waning cash flow levels are likely to weigh on company positives.
Why the Downgrade?
China Life's operating income improved in the first half of 2013
due to increased investment income as well as other operating
income. However, we believe substantial interest rate and
currency risks might mar the results to some extent going
Furthermore, weak operating cash flow raises concern regarding
the company's ability to maintain and grow its operations. A
continued trend of lower cash flows can deteriorate the cash
balance of the company, thereby weighing on its balance sheet and
financial position as well.
Additionally, China Life's investments are limited to China. Thus
the company's operations are susceptible to a decline with a
downturn in the Chinese economy. Further, with the growing
Chinese insurance industry, China Life encounters threats from
potential new entrants.
China Life is also exposed to foreign exchange risk in addition
to volatility in the concerned market. Higher-than-expected
benefits and expenses owing to increased expenses in its
individual, group and short-term insurance businesses have also
added to our concern regarding the company in the upcoming
The positives to look out for with China Life are its strong
brand name, extensive distribution and service network, constant
efforts to improve its existing services and upside in investment
income. The company with a Zacks Rank #2 (Buy) also scores
strongly with the rating agencies.
Over the last 60 days the Zacks Consensus Estimate for 2013 and
2014 increased only by a penny to $2.60 and $2.95 respectively,
reflecting no clear directional pressure in the near term.
Other Stocks to Consider
Among other life insurance companies,
StanCorp Financial Group Inc.
) carries a favorable Zacks Rank #1 (Strong Buy) while
Lincoln National Corporation
Protective Life Corporation
) share the same Zacks Rank as China Life.
CHINA LIFE INS (LFC): Free Stock Analysis
LINCOLN NATL-IN (LNC): Free Stock Analysis
PROTECTIVE LIFE (PL): Free Stock Analysis
STANCORP FNL CP (SFG): Free Stock Analysis
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