PICC Group Earnings: Net Profit Up on Stock Market Rally as New Business Growth Accelerates

We maintain our fair value estimate for PICC Group at HKD 3.8 per share, following steady year-to-date insurance revenue growth of 6% and a significant 77% rise in net profit in its third-quarter results. These results align largely with our expectations. Currently, the stock appears fairly valued, trading at 0.6 times 2024 book value and offering a dividend yield of over 4%. This lower valuation compared with peers, which typically trade at 0.7 to 0.9 times book, can be attributed to the value-dilutive effect of PICC's non-property-and-casualty insurance business, which has delivered an average return on equity of 6% over the past three years, versus 13% from its core P&C insurance segment. Nonetheless, we have seen accelerated growth in value of new business, or VNB, over the past two years, driven by favorable industry trends and a low base. A potential upward rerating will likely depend on the group's ability to continue exceeding market expectations in VNB and auto underwriting margins.