Static share price performance; maintain Hold
China Re share price didn't move much in 2017 （-0.2%） and YTD 2018 （-0.6%），as compared to its insurance peers. We don't see much catalyst for its business,and thus maintain our Hold rating. For its direct P&C business, we believe itis stil at very early stage for China Continuent's cooperation with Wesure, aninsurance intermediary 58%-owned by Tencent, in auto insurance segment. Giventhe already intensive competition environment, we are cautious on potentialimpact on underwriting profitability. The note marks the transfer of coverage fromEsther Chwei to Lexie Zhou.
Earnings revision
We lowered our 2017E earnings forecast by 12.0%, mainly due to lower earningsforecast for P&C Re. This is based on weak 3Q17 earnings, which recordednet losses of Rmb235mn, dragged by internationa business on the back of thesignificant increase in natura catastrophe globally. We expect P&C Re to recordunderwriting losses of Rmb255mn in 2017E. We now forecast 2017E Groupnet profits of Rmb5,204mn, +1.1% yoy, which indicate 2H17E net profits ofRmb2,251mn, -8.0% yoy. As a result, we lowered our 2018E earnings forecast by10.0% to Rmb6,398mn.
Target price of HK$2.1/shr
We maintain a target price of HK$2.1/shr on the back of 1） rolling forward to2018E, 2） currency adjustment from 7.4 （USDCNY） to 6.7, and 3） factoring in 4%-LT inv return assumption and 12.5% risk discount rate for life valuation. We valuethe company based on our sum-of-the-parts valuation, which implies a 2018E P/B of 1.0x and P/E of 11.8x. 30% of our valuation comes from P&C Re, which isbased on a 2018E target P/B of 1.0x. 30% of the valuation comes from Life Re,with target life P/EV of 1.1x. 16% comes from primary P&C business, based ona target PB of 0.8x.