Analysts reduced their financial forecasts for China Life Insurance Co Ltd (中國人壽保險) for this year, after the company reported lukewarm sequential earnings for last quarter.
Yuanta Securities Investment Consulting Co (元大投顧) slashed its earnings per share (EPS) estimate for the insurer by 9 percent for this year, and 6 percent for next year, while CIMB Group Holdings raised its expectations by 6 percent and 13 percent respectively.
The insurer reported that net income in the first quarter dipped 18 percent annually to NT$2.29 billion (US$70.4 million), and that its enterprise value had gained 15.1 percent annually to NT$183.6 billion.
Both of the brokerages left their “hold” recommendations unchanged.
“We do not see any share price catalyst as earnings this year are expected to decline due to macroeconomic headwinds, with weak market sentiment continuing to strain the valuations of the domestic life insurance sector,” Yuanta analyst Peggy Shih (施姵帆) said in a research note on Friday.
The company’s first quarter earnings were below Yuanta’s estimates, due to a 15 percent annual decline in investment income and a surge in provision expenses resulting from a 44 percent annual jump in first-year premium collections, Shih said.
The insurer’s investment return is also expected to be depressed by higher cost of liability this year, as there has been a rise in consumer demand for single-pay policies, despite efforts at promoting regular-pay policies, Shih said.
In a separate note published on Friday, CIMB Taipei-based analyst Nora Hou (侯乃鳳) said that China Life’s first quarterly results had exceeded its expectations, and had reached 39 percent of the brokerage’s full-year forecast, while the insurer’s stock price had consistently outperformed financial sector peers in most of the past 12 months.
However, Hou also raised concerns about China Life’s rapid expansion in single-pay traditional products, as well as low margin interest variable annuities.
Credit Suisse Group AG maintained its “outperform” rating, and also left its EPS forecast unchanged.
Credit Suisse Taiwan market strategist Chung Hsu (許忠維) said China Life was able to fully offset a NT$1 billion foreign-exchange loss caused by the weakening US dollar, due to better-than-expected fixed-income gains.
Hsu added that recurring yields in the first quarter improved 18 basis points on an annual basis as the company shifted about 60 percent of its total portfolio to overseas assets and bonds.
China Life chairman Alan Wang (王銘陽) said that the company has begun reporting monthly preliminary earnings, to allow for a better representation of actual performance in its share price.
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