On Jan 17, 2013, we downgraded China's leading life insurance
China Life Insurance Co. Ltd.
) to Underperform from Neutral, based on the constant decline in
operating cash flow, which is affecting the financials. The
gradual decline in premiums and increasing competition on the
domestic front are the other downsides.
Why the Downgrade?
China Life carries a Zacks Rank #5 (Strong Sell). One out of
the two analysts covering the company revised their 2012 earnings
estimate downward over the past 30 days. As a result, the Zacks
Consensus Estimate for 2012 fell to 95 cents per share, down 39%
China Life reported net loss of RMB0.08 (US$0.18 per ADR) per
share in the third quarter of 2012, declining substantially from
net income per share of RMB0.13 (US$0.31 per ADR) in the
comparable quarter of 2011.
China Life's cash flow from operating activities is declining
gradually. It reduced 15% year over year in the first nine months
of 2012, mainly due to a substantial decrease in policyholder
deposits along with increased cash paid for held-for-trading
financial assets, and taxes and surcharges.
Moreover, China Life has been witnessing deterioration in net
premiums over the past few quarters. Given that premiums are the
main source of business for an insurance company, premium
increase is essential for top-line growth in the long run.
Further, China Life faces intense competition from both
domestic as well as foreign companies. The company is also
exposed to significant foreign exchange risk.
Other Stock to Consider
While we prefer to avoid China Life until we see signs of
improvement in the company's performance, other insurance stocks
worth a look are
- Zacks Rank #1 (Strong Buy),
ING Groep NV
) - Zacks Rank #2 (Buy) and
Manulife Financial Corporation
- Zacks Rank #2 (Buy).
AVIVA PLC-ADR (AV): Free Stock Analysis
ING GROEP-ADR (ING): Free Stock Analysis
CHINA LIFE INS (LFC): Free Stock Analysis
MANULIFE FINL (MFC): Free Stock Analysis
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