China Taiping shares boosted by asset deal
Insurance firm's earning per share raised by 29 per cent as it acquires assets from its parent group
A 10.58 billion yuan (HK$13.38 billion) deal for China Taiping Insurance to buy assets from its parent sent shares in the mainland's fifth-largest insurer up by the most in more than 4-1/2 years yesterday.
The shares rose to an intra-day high of HK$14.34 per share before closing at HK$14.20, up 14.9 per cent, the biggest gain in a day since October 2008.
The shares, which were the best performer on the MSCI China Index, were suspended last Friday and resumed trading yesterday after the asset purchase plan was announced on Monday.
China Taiping said it would buy assets from China Taiping Insurance Group for 10.58 billion yuan in new shares at HK$15.39 apiece, which is a 24.5 per cent premium to last Friday's closing price.
Kenneth Yue, an analyst at CCB International, said the share price would continue to be supported, as the asset purchases would help remove overhang from the company's restructuring plan.
China Taiping was trading at a price-to-embedded-value of about 0.8 times, which was 33 per cent lower than the average of 1.2 times of other mainland insurers, he said. Embedded value is a common valuation measure used in the insurance industry which refers to the sum of adjusted net asset value and the present value of future profits of a firm.
"Based on the price-to-embedded-value ratio, China Taiping is undervalued," Yue said.
The asset injection would also boost earnings per share by 29 per cent, while the premium in the price of the new shares would also help foster an increase in the share price, he said.
Taiping Life, in which China Taiping would buy a 25.05 per cent stake for 7.01 billion yuan under the restructuring plan, would be a focus of the company's future growth, Yue said.
"I expect the company to focus on growth in the embedded value and net asset value of Taiping Life in the coming year," he said.
Morgan Stanley said in a research report yesterday that the restructuring would be positive for both China Taiping and its parent in streamlining their businesses.