"Big Banks" JP Morgan: Chinese insurance stocks lag behind the market, prefer Ping An and China Life

JP Morgan published a report indicating that after the Lunar New Year holiday, the performance of Chinese H-share insurance companies lagged behind the market. The market seems to be focused on: (1) short-term profit risks, as major insurance companies have yet to announce positive profit forecasts; (2) a lack of data points, as there has been no disclosure of monthly premium income; and (3) macro trends following the Lunar New Year holiday.

The bank expects that as the earnings announcement period approaches, the sector will regain momentum. Five key catalysts include: (1) discussions on enhancing total shareholder returns; (2) optimistic guidance from management regarding the life insurance sales outlook for fiscal year 2026; (3) a robust solvency capital position in the fourth quarter of 2025; (4) declining funding costs; and (5) increased confidence in the recovery of the Contractual Service Margin (CSM) for life insurance reserves. The bank prefers Ping An (02318.HK) due to its recovery in life insurance sales and attractive valuation; and China Life (02628.HK), which, in addition to similarly strong life insurance sales growth prospects, also offers discussions on enhancing shareholder returns. JP Morgan has assigned "Overweight" ratings to Ping An and China Life H-shares, with target prices of HKD 100 and HKD 40, respectively.

JP Morgan believes that unless the annual net profit changes by more than 50%, insurance companies do not need to issue profit forecasts. The bank predicts that for fiscal year 2025, China Life, Ping An, and CPIC (02601.HK) will see net profit growth of 47%, 19%, and 10% year-on-year, respectively. Due to a greater focus on sustainable per-share dividend growth driven by core earnings, as well as increased volatility in net profit under the new accounting standards, insurance companies are more cautious about voluntarily issuing profit forecasts. The bank does not believe that the lack of positive profit forecasts poses a profit risk for this quarter. Notably, market consensus for fiscal year 2026 net profit forecasts has already shown a year-on-year decline of 9%, thus the bank believes the risk of further downward adjustments to market consensus at this stage is limited