WHAT THE BROKER SAYS
Nomura Asia research says the biggest challenge facing Pacific Century Insurance (PCI) in the second half of the year is how to get investment returns back to an historical average of 7 per cent, which is also the investment assumption for enterprise value.
In the second quarter PCI net income fell 58 per cent quarter on quarter, hit by a lower investment return.
Last week PCI, which is 46.7 per cent owned by Richard Li Tzar-kai's Pacific Century Regional Developments, reported a profit of $71 million for the first half, compared with a loss of $121 million in the first half of 2004.
The broker says core operations remain on track: annualised first-year premium grew by 47 per cent year on year to $180 million. The persistency ratio and agency productivity also saw a noticeable rise.
The stock appeals on fundamental but drivers may be few. Nomura has lowered its investment assumption for 2005 from 6 per cent to 5.6 per cent, which cuts estimates of earnings by 6.8 per cent year on year.
The recommendation on PCI is downgraded from 'strong buy' - expected to outperform the benchmark by at least 15 per cent in the next six months - to 'buy', expected to outperform by at least 5 per cent. The shares trade at 0.76 times the fair value estimate of $4.19 and remains the most undervalued life insurance company in the Asia, excluding Japan.
The counter closed on Friday at $3.15.
