PICC makes strong debut on HKEx

Mainland's largest non-life insurer closes 6.9pc higher than offer price, helped by the easing of restrictions on investment in commercial banks

PUBLISHED : Saturday, 08 December, 2012, 12:00am
UPDATED : Saturday, 08 December, 2012, 3:46am

People's Insurance Co (Group) of China, the mainland's largest non-life insurer, raised investors' eyebrows on its debut in Hong Kong yesterday, jumping as much as 8.05 per cent at one point.

PICC, which had priced its shares near the bottom of the indicative range, closed at HK$3.72 - 6.9 per cent higher than its offer price of HK$3.48. The Hang Seng Index fell 0.26 per cent in heavy trade.

"The solid debut of PICC was driven by a wave of fresh buying momentum after the China Insurance Regulatory Commission eased the restrictions on insurance companies' investment in commercial banks, offering more flexibility to insurers to diversify their risks and revenue streams," an insurance analyst at a US investment bank said after the market closed.

The commission said on Wednesday mainland insurers would be allowed to broaden their investment positions in commercial banks. That followed a decision in September to allow insurers to outsource some of their investment operations to improve their investment returns.

The analyst said the valuation of PICC's shares was "not attractive" because the growth of premiums in its flagship non-life business had moderated, with signs of market share being lost to smaller rivals.

In the life insurance sector, large players such as China Life Insurance, the country's biggest life insurer, also face challenges from smaller, swiftly moving competitors.

"The revenue growth driver for the No 1 non-life insurer should be its life business, while profit should rely on synergy among existing operations, which remains doubtful at this juncture," the analyst said.

According to PICC's listing documents, the firm's market share of the non-life business, which accounted for the bulk of its revenue, fell to 36 per cent in the year's first half from 36.3 per cent at the end of last year.

Joining the recent listing rush, PICC raised US$3.1 billion in its Hong Kong initial public offering - the biggest in the city since AIA raised US$20.5 billion in 2010.

The deal is also the world's fifth-largest this year, taking the Hong Kong stock exchange to fourth place in the global IPO ranking by value after the New York Stock Exchange, Nasdaq and the Tokyo Stock Exchange.

As a well-known brand in China, PICC enjoyed a warm reception for its offering from retail investors, whose tranche of the deal was expanded to 7.5 per cent from the original 5 per cent, which was more than 16 times oversubscribed.

Echoing the analyst's negative tone, Patricia Cheng, an insurance analyst at CLSA Asia-Pacific Markets, said in a research note initiating coverage of the insurer that it "is sandwiched in an awkward position, as the non-life business is battling an increase in combined ratio [a measure of profitability] and flat earnings growth".

Cheng has a sell rating on PICC in her report, citing an expensive valuation and a downturn in the non-life business.

Market participants were surprised by PICC's strong trading debut after a recent slew of poorly performing listings. Shares of Zhengzhou Coal Mining Machinery, a maker of hydraulic drills for coal mining, fell sharply on their debut on Wednesday in the face of investor indifference. The stock yesterday closed at HK$9.89, still down from its offer price of HK$10.38.