PICC P&C reported a strong 1Q25 earnings alert, with net profit expected to surge 80%-100% YoY to RMB10.6bn-11.7bn, implying a QoQ upswing of 95.3%-117% vs 4Q24 (link). 1Q25 net profit represented more than one-third (33%-37%) of last year’s total net profit, driven by 1) a largely improved CoR with reduced catastrophic claims in 1Q25; and 2) optimized asset allocation structure shifting from the FVTPL to FVOCI, which helped smooth the volatilities from fair value movement to achieve steady investment income growth amid market fluctuations. We estimate the 1Q25 CoR to arrive at less than 95%, and adjust the auto/non-auto CoR to 95.9%/99.0% (prev.96.0%/98.9% report) in FY25E, thanks to stringent expense controls and an improved non-auto UW structure. For auto, we expect the premium growth to be driven by the rise of new vehicle sales and a higher penetration of NEVs; and for non-auto, we pare down FY25E premium growth forecast to 6% as the insurer could prioritize profitability to UW expansion, in our view. On investment, we expect the insurer to steadily increase equity allocation to high-yield stocks under FVOCI, on top of the 40% growth in FY24, and 1Q investment income could be bolstered by equity gains and a rebounded bond yield. Maintain BUY, with TP at HK$15.8 (unchanged), implying 1.19x FY25E P/BV.
1Q25 CoR improved on narrowed claims. According to the data from MEM*, total direct economic losses from NAT CAT claims amounted to RMB 9.3bn in 1- 2M25 (vs 1-2M24: RMB20.7bn), down 55% YoY, evidenced for a reduced total amount of P&C claims across the sector. We expect the insurer’s 1Q25 CoR to land at less than 95%, down approx. 3pct YoY on top of a high base of 97.9% in 1Q24, which was dragged by deteriorated catastrophe-induced claims from freezing rains. In 1Q25, we expect non-auto CoR to trim faster than auto CoR, as the insurer re-addresses on non-auto expense controls and determines to scale down the loss-making lines suchlike the employer’s liability insurance and credit insurance. Auto CoR could slightly improve with avg. ticket size stabilized across peers. We adjust the auto/non-auto CoR forecasts to 95.9%/99.0% (prev.96.0%/ 98.9%) in FY25E, to reflect an improved auto structure tilted to household vehicles, which made up 74.3% of FY24 auto premiums; and the risk mitigation in non-auto potentially taking more time.
Expect 1Q25 H-share surge to drive investment gains. The insurer has reallocated investment fund portfolio to FVOCI assets. In FY24, FVTPL/FVOCI assets were down 16.6%/up 35.3% YoY to make up 18%/36% of total portfolio. On equities, stocks in FVOCI/FVTPL increased 40%/20% YoY whilst equity funds were stable to a rise of 0.3% YoY, comprising 5.8%/1.4%/2.2% of total investment assets by end-FY24. In 1Q25, the HSI/HSCEI jumped 15%/17% (vs 1Q24: -3%/+1%, Fig 1), which could enhance the insurer’s equity gains. Beyond that, China’s 10YR govt. bond yield rose 14.4bps to 1.82% in 1Q25 (vs 1Q24: -28bps), driving the growth of bond interests. Looking ahead, we expect the insurer to steadily edge up allocation to FVOCI stocks and LT govt. bonds to smooth the fair value movement for a stable LT investment income.
Valuation and risks. The stock is trading at 1.06x FY25E P/B with 3yr-forward ROE at 13.6%. Considering investment movements, we adjust FY25-27E EPS forecasts by 3%/1%/-1% to RMB 1.62/1.76/1.91, and remain positive on the insurer’s UW results to meet the full-year guidance of 1) auto/NEV CoR less than 96%/100%, and 2) non-auto CoR less than 99%. Maintain BUY, with TP unchanged at HK$15.80 based on P/B-ROE, implying 1.19x FY25E P/BV. Key risks involve deteriorated CoR, and intense equity market volatilities, etc.