CPIC’s Q3 Reported Resilient Profits in Non-Auto Insurance Business Despite Natural Disasters

No-moat China Pacific Insurance’s, or CPIC's, third-quarter results were largely in line with our expectations. First-three-quarters net profit growth slowed to 15.5% year on year from 21.5% in the first half on deteriorating growth in net earned premium and investment return. These two revenue streams contracted 8% and 7% respectively in the third quarter from 4% and 23% growths in the first half. Third-quarter net profit merely dropped 0.5% year on year, which was better than the double-digit decline for most peers. This was attributable to a strong investment return at 5.3% and an 18% year-on-year decline in insurance liability reserve provisioning. The results are 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.