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Nikkei Markets

China Life jumps most in seven months on profit outlook

Higher equity investment returns and lower tax boost nine-month earnings

The Hong Kong-listed shares of China Life rose 5% to HK$19.70 on Monday, their biggest single-day advance since March.   © Reuters

HONG KONG (Nikkei Markets) -- Shares of China Life Insurance jumped the most in seven months on an improved outlook after the company issued a preliminary earnings estimate for the first three quarters of the year that beat expectations.

The state-owned insurer said late on Friday that it expects its net profit for the January-September period to increase in the range of 180% to 200% from a net profit of 19.87 billion yuan ($2.81 billion) a year ago. The anticipated increase is because of "significantly" higher market returns, especially from its equity investments, as well as a change in a government policy that is seen lowering its tax expense by about 5.20 billion yuan in a non-recurring benefit.

China Life, the country's largest life insurer by assets, has been on a comeback trail over the past few quarters after poor market returns from its 3.3 trillion yuan investment portfolio and an industry-wide crackdown on investment-linked insurance plans hurt its profits last year.

Company officials had in August highlighted that under a revitalization plan called the "Dingxin project," China Life aims to bolster returns by setting up an investment management system that would optimize the mix of incentives and restraints while boosting staff "vitality."

Analysts at Credit Suisse estimate the nine-month performance implies that China Life's profit at least quintupled in the third quarter from a year ago. The brokerage on Monday kept its outperform rating and lifted the price target on China Life's shares to HK$27 from HK$26 based on the magnitude of the profit increase, which beat its expectations. It also raised the Chinese insurer's earnings estimates for 2019 by 41%, and for each of the next two years by 7%, to factor in the earnings so far this year and the investment performance on China Life's "enhanced capability."

The Hong Kong-listed shares of China Life rose 5% to HK$19.70 on Monday, their biggest single-day advance since March. The city's benchmark Hang Seng Index ended little changed.

The Beijing-based company's earnings performance comes against the backdrop of slowing Chinese economic growth, with the country's GDP expanding in the third quarter at the slowest pace in 27 years. Company officials had in August acknowledged the adverse effect of the trade war on macroeconomic conditions, but said they would push into smaller Chinese cities to find growth and planned to hire more agents, strengthening the headcount of a sales force that was 1.9 million strong in the first half.

Relatively sanguine mainland equity markets also appeared to have helped. The Shanghai Composite has risen nearly 18% so far in 2019, compared with a 3.4% increase for the Hang Seng Index during the period.

The Credit Suisse analysts said China Life's value of its new business (VNB), an indicator of future profitability that rose 22.7% in the first half of 2019, is estimated to expand in the double-digits in the second half, resulting in a full year growth of 18%.

They added that the company's VNB will rise "at least" in the single-digits in the first half of next year, aided by the "rising attractiveness of insurance policies against wealth management products," among other factors.

Notwithstanding the strong quarterly performance, some analysts continue to favor Ping An Insurance Group, China's most valuable insurer, over China Life.

Alvin Ngan, an analyst at Zhongtai International Securities, attributes that preference to Ping An's growing presence in financial technology or fintech services, and an investment yield that he says is

"more stable" than at China Life.

In a statement also issued on Friday, Ping An reported gross premium income of 417.85 billion yuan for its life and health insurance business. Ping An had reported life insurance premiums of 380.39 billion yuan for the same period a year ago.

Earlier this month, China Life had reported a premium income of 497 billion yuan for the January-to-September period, up 6.1% from a year to ago.

"China Life's profitability could be more in line with market performance, but in the long-term, we still prefer Ping An," Ngan said.

-- Benny Kung and Lopamudra Bhattacharya

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