Analyst cuts in income forecasts send shares of PICC falling 11.4pc
Shares of PICC Property and Casualty, the mainland's top non-life insurer, fell the most in a month yesterday after disappointing earnings triggered massive downward profit revisions by analysts.
The company, which holds 42.5 per cent of the mainland non-life insurance market, dived 11.39 per cent to HK$6.77. The stock fell 66 per cent from its peak in October last year amid the subprime crisis in the United States and concerns about rising inflation on the mainland.
PICC on Tuesday said net profit grew 43.7 per cent to 2.99 billion yuan (HK$3.34 billion) last year, way below the 157 per cent growth or 5.33 billion yuan profit forecast by analysts in a Thomson Financial poll.
'It was really a negative surprise to the market,' said Peter Pak, vice-president of BOCI Research. 'The insurer has undergone a management reshuffle in the past few years and there were higher expectations for underwriting and investment returns.'
The company faces even tougher conditions down the road. PICC has conceded its underwriting profit in the first quarter is far from satisfactory, although it remains hopeful of hitting its target for the year.
'It's not good,' said executive vice-president and chief financial officer Wang Yincheng. 'But we haven't given up the targets set at the start of the year.'
Premiums in the first quarter grew 20.15 per cent to 29.11 billion yuan, PICC said on Monday. The market had expected a loss in the underwriting business for the period due to weaker demand for commercial vehicle insurance and heavy compensation related to snowstorm damage.
The insurance company has so far paid out 2.12 billion yuan in claims for the worst snowfalls in 50 years and said it is unable to determine the final overall impact.
'PICC remains a difficult story due to the competitive industry,' said JP Morgan, which has maintained its 'underweight' rating on the firm.
Citigroup cut its full-year forecast by 75 per cent after the results announcement, citing higher expenses and stock investment risks.
Morgan Stanley cut its earnings estimate by 62 per cent this year and 40 per cent next year. Credit Suisse, BNP Paribas, CLSA and Nomura also slashed their forecasts.
'Equities made up 22 per cent of the investment portfolio last year, which we consider a high risk' for a property and casualty insurer, Citigroup said.
PICC said it had trimmed its stock holdings to 12 per cent in the first quarter. 'We were very smart in reducing our equity exposure and risk profile in the first few months,' said vice-chairman, president and chief executive Wang Yi. 'Nevertheless, we are confident about the A-share market in the second half as the subprime crisis should be much clearer and inflation would also trend downwards.
'This should offer good investment opportunities not only in the secondary market, but also for strategic equity investment.'