PICC Group Earnings: Increasing Valuation on Better Auto and Health Insurance Margin Outlook

We increase our fair value estimate for PICC Group to HKD 4.80 per share from HKD 3.8 per share after the Group reported 88% growth in 2024 net profit driven by 86% increase in investment income. The valuation change factors in 50-80 basis points declines to P&C combined ratio assumptions and 100-200 basis points reductions to life and health loss ratios during our forecast period, driven by management’s higher P&C margin guidance, better-than-expected life and health margins in 2024, and potential regulatory tailwinds in 2025. P&C, life, and health insurance represented 77%, 11%, and 5% net assets of the group. Our fair value implies 1.1, 0.3, and 0.3 times 2025 price/book ratios for P&C, life, and health business, respectively, and a 40% conglomerate discount, which is due to market concerns about the value-dilutive effect of its non-P&C insurance business and lower flexibility in the dividend payout ratio. We believe the stock is undervalued at 0.6 2025 price/book and we now prefer PICC Group over PICC P&C, as the latter is fairly valued.