We have retained our Outperform recommendation on
China Life Insurance Co. Ltd.
) following impressive first half results. We expect superior
brand name, an extensive domestic distribution channel and strong
investments of China Life to bolster its operations in the
upcoming term. This leading Chinese life insurance company
carries a Zacks Rank #2 (Buy).
Why the Reiteration?
China Life's earnings for the first half of 2013 came in at
RMB0.83 per share ($0.13 per ADR), witnessing a surge of 68.1%
year over year.
The Zacks Consensus Estimate for 2013 moved up by 0.4% to $2.59
over the last 30 days. The estimate also translates to a year
over year increase of 178.5%. Similarly, for 2014, the Zacks
Consensus Estimate improved by 0.3% to $2.94 over the same time
With a strong distribution and service network, China Life is
well positioned to reap benefits of scale from the Chinese
insurance market. In fact China Life became the first Chinese
insurance company to obtain a private equity fund license and
enter the private equity business in Aug 2011. The private equity
business can generate impressive profits if managed properly.
Moreover, the company's continuous efforts to maintain its huge
clientele base through dedicated customer service are expected to
help the company write new business going forward.
Additionally, the company's strong brand name and goodwill has
enabled it to achieve success in the new field easily, compared
to lesser-known insurance companies.
China Life has also been facilitated by the increased allocation
in held-to-maturity securities, bank deposits and a higher volume
of policy loans and debt investment plans. As a result,
investment income has been increasing over the past few years and
is expected to improve further with the improving economic
scenario. The Chinese life insurer also scores strongly with the
credit rating agencies.
However, China Life's declining operating cash flow, exposure to
domestic market risks and higher than expected benefits and
expenses are some of the matters that need attention. Also with
the growth in the Chinese insurance market, China Life encounters
threats from potential new entrants that must be countered
through growth strategies.
Other Stocks to Consider
Among other life insurance companies that are worth considering
StanCorp Financial Group Inc.
) carrying a favorable Zacks Rank #1 (Strong Buy) and
Health Insurance Innovations Inc.
Lincoln National Corporation
) sharing the same Zacks Rank as China Life.
HEALTH INS INN (HIIQ): Free Stock Analysis
CHINA LIFE INS (LFC): Free Stock Analysis
LINCOLN NATL-IN (LNC): Free Stock Analysis
STANCORP FNL CP (SFG): Free Stock Analysis
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