PICC P&C beat in 1H earnings, with net profit lifting 32.3% YoY to RMB 24.5bn, translating into 4.1% rise in 2Q25, propelled by a double play of underwriting profit (+45%) and net investment results (+62%). CoR dropped 1.4pct YoY to 94.8%, with comprehensive expense ratio down 3.1pct YoY to 23.0%, offset by the loss ratio ticking up by 1.7pct YoY to 71.8%, outperforming major peers as Ping An/ CPIC/Sunshine/ZhongAn/TPI’s CoR at 95.2%/96.3%/98.8%/95.6%/95.5%. We see auto/non-auto CoR improved by 2.2pct/0.1pct YoY to 94.2%/95.7% in 1H25, well met the guidance of CoR less than 96%/99% set by the mgmt. at year-start. Net asset value jumped 7.9% from FY24, thanks to the climb of retained earnings (+24%) and reserves (+10%). ROE enhanced to 9.0% in 1H25, up by 1.3pct YoY. Catalysts ahead may include 1) the Integration of Reporting and Operations for non-auto insurance business is expected to implement by 4Q25, which could further edge up profitability; 2) auto insurance going overseas has been launched amid strong momentum of NEV export. Given improved UW efficiency, we raise our FY25-27E EPS estimates to RMB1.68/1.83/2.04, up 4%/4%/7% with our new TP of HK$21.6, implying 1.6x FY25E P/B. Maintain BUY.
　　Auto/Non-auto CoR improved by disciplined expense controls. In 1H25,
　　CoR improved 1.4pct YoY to 94.8%, implying 2Q CoR at 95% as we estimate. Comprehensive loss/expense ratio was up 1.7pct/down 3.1pct YoY to 71.8%/ 23.0%. Auto/non-auto CoR was 94.2%/95.5%, down 2.2pct/0.1pct YoY, driven by effective expense controls partially offset by tick-up of claims. Auto: expense ratio dropped 4.1pct YoY to 21.1%, a record low, indicating the insurer’s strong bargaining power in pricing and cost efficiency. Claims ratio edged up 1.9pct YoY to 73.1%. Non-auto: claims/expense ratio was up 1.5pct/down 1.6pct to 69.8%/25.9%. The expense improvement (-1.6pct) was lower than that of auto insurance (-4.1pct) due to a higher mix of policy-oriented business. Corporate business CoR enhanced 3.2pct YoY to 95.1%, showcasing improved operating efficiency. A&H/agriculture/liability/commercial property CoR was at 101.8%/ 88.4%/103.6%/90.1%/88.6%, +1.9pct/-0.6pct/-0.4pct/-9.5pct/+1pct YoY in 1H. CoR outlook: We think the extended Integration of Reporting and Operations (“ 报行合一”) to non-auto insurance possibly to implement in 4Q could enhance disciplined expense management across lines, and significantly improve non- auto CoR in FY26E. We revise down our FY25E CoR forecast to 97% (prev. 97.1%), with auto/non-auto CoR to 95.8%/99.0% (prev. 95.9%/99.0%).
　　Investment outperformed by capturing the upturn of stock market. Total investment assets grew 5.2% from year-start to RMB711bn, with listed shares increased RMB16.5bn in 1H25 vs. FY24. Of which, OCI/TPL stocks comprised 56%/44% of the increment, with the balances up 24%/75% from end FY24. In 1H25, dividend income rose 7.2% YoY to RMB3.3bn, driven by the part from OCI shares (+12%) offset by that of TPL stocks (-17%). Realized gains from TPL equities surged 18.2x YoY to RMB2.1bn, indicating a good catch of the insurer’s asset allocation strategy to the upturn of A-share stock market in 1H. Looking ahead, we expect a more balanced investment portfolio could benefit the insurer by steadily increasing the net investment income, while changes in fair value could take pressure in 2H25E, given a high base of stocks and bonds.
　　Valuation: The stock is trading at 1.4x FY25E P/B, with 3yr average ROE at 14% and 3.9% yield. We upgraded our EPS forecasts in FY25-27E to RMB1.68/1.83/2.04 (previous: RMB 1.62/1.76/1.91) in accordance with better- than-expected UW profitability and investment results in 1H, and a better CoR to 97% (prev. 97.1%) given improved underwriting mix of non-auto lines and strengthened capability on risk prevention and cost control. Maintain BUY, with our new TP at HK$21.6 based on P/B-ROE, which implies 1.6x FY25E P/B.
　　 Key risks: 1) worse-than-expected catastrophic losses in 3Q25 that weigh on CoR; 2) weaker-than-expected auto premium growth and overseas expansion; 3) heightened equity market volatilities, and sharp declines in interest rate, etc.