CPIC’s First-Half Results Highlight Positive Progress in Agent Reform, P&C Profitability Weakened

China Pacific Insurance’s, or CPIC's, first-half results were largely in line with our expectations. First-half net profit growth accelerated to 21.50% year on year from 1.50% in the first quarter primarily on increased investment returns, with total investment yield rising 0.20 percentage points to 5% from the year-ago period. Growth in first-half net earned premium dropped to 3.80% from 4% in the year-ago period. While growth in life insurance premium gradually recovered to 2.40% from a 1% contraction, the slowing growth in the P&C insurance premium to 6.80% from 17% in the year-ago period more than offset the positive impact. The results were in line to deliver our projected 2021 net profit growth in the midteens; we retain our A-share and H-share fair value estimates of CNY 30 and HKD 36, respectively. The H-shares imply a historical low valuation level of 0.3 times 2021 price/embedded value. The stock is undervalued.