PICC P&C's Third-Quarter Underwriting Margin Further Improves Across the Board

PICC P&C’s third-quarter results continued to deliver stronger-than-expected improvement in underwriting margins across major insurance lines, underpinning the company's scale advantage, strong cost management, and distribution strength despite a challenging macro environment. Nine-month net profit grew 30% year on year, at the high end of the 25%-30% range disclosed in previous earnings alerts. Notably, third-quarter net profit grew 98% against the year-ago period on accelerating premium growth and improvement in underwriting margin during the quarter. The stock appears undervalued, trading at 0.6 times 2022 book value. The market reacted positively right after the results announcement but was dragged by overall market weakness later in the day. The company is likely to face some headwinds in 2023, including slower auto sales and higher claims as social activities gradually recover. Still, we believe its leading scale and strong risk pricing by leveraging its vast customer base and strong distribution team should translate into industry-leading auto insurance margins and higher-than-peer returns on equity. The ongoing business optimization in nonauto insurance business and potential improvement in pricing regulations is a potential positive for growth in 2023.