Across The BorderChina Life profit warning has not put a dent in investor confidence

China Life is facing a lower net profit but that has not stopped investment banks from holding “buy” ratings on the stock, on the back of strong new business growth.

Beijing-based China Life, the Asia-Pacific region’s biggest insurer by market value, has forecast a 55 per cent to 60 per cent tumble in its first-quarter net profit, with the results to be announced on Thursday.

Its first-quarter earnings are expected to hit about 5.9 billion yuan (HK$7.05 billion) to 5.5 billion yuan, sharply down from the 12.27 billion yuan in the same period last year, due to a big drop in investment income.

However, Bank of America Merrill Lynch has reiterated its “buy” rating, saying the insurer’s valuation is undemanding and forecasting the value of new business will grow 22 per cent this year.

Katherine Hu, a research analyst at Bank of America Merrill Lynch, said lower first-quarter earnings could mainly be attributed to reduced investment income and an increase in reserve catch-up due to the falling 750-day average government bond yield. She said that going forward, earnings should be more focused on the insurer’s products rather than stock investments and that it would need to set aside less reserves to redeem claims as bond yields stabilise.