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Articles from Caixin Global

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Equity Bottom-Up

New China Life Insurance / Equity Bottom-Up

<ul><li>New China Life Insurance Co. Ltd. will partner with a unit of China International Capital Corp. (CICC) to set up a $1.4 billion fund to invest in companies with real estate assets, as the state-owned insurer taps the property sector for long-term returns despite a market downturn.</li><li>New China Life said it has reached an agreement with China Capital Investment Group (CCIG) to forge the private fund, in which the insurance company will provide 9.999 billion yuan ($1.4 billion) as the limited partner. CICG will be the general partner with 1-million-yuan investment and will manage the fund.</li><li>The fund, with a term of eight years, will focus on direct and indirect investment in companies holding property projects in their long-term portfolios, according to New China Life.</li></ul>

New China Life Insurance Co. Ltd. will partner with a unit of China International Capital Corp. (CICC) to set up a $1.4 billion fund to invest in companies with real estate assets, as the state-owned insurer taps the property sector for long-term returns despite a market downturn.New China Life said it has reached an agreement with China Capital Investment Group (CCIG) to forge the private fund, in which the insurance company will provide 9.999 billion yuan ($1.4 billion) as the limited partner. CICG will be the general partner with 1-million-yuan investment and will manage the fund.The fund, with a term of eight years, will focus on direct and indirect investment in companies holding property projects in their long-term portfolios, according to New China Life.

New China Life Sets up $1.4 Billion Fund for Property Investments

Founder of Antler Capital

Stanley Tsai, CFA

Thematic (Sector/Industry)

In the spirit of the long-awaited UEFA Euro 2020, we present our inaugural "China Financials: Silver Linings Playbook", which summarizes our views on the names that are best positioned to navigate an environment of progressively slower credit growth, tighter liquidity and rising defaults. 
Our screen consists of 100+ stocks in the A/H share universe, as well as a select number of international / non-traditional names that have significant exposures to China's financial system. We have a preference for larger-cap and liquid names, which are then filtered by our opinions on their fundamentals, value, momentum and recent trading volumes. We also try to make our selections versatile and less vulnerable to single-factor movements.
Each player's position on the pitch and the team formation itself convey incremental information about our thoughts on the sector's performance over a three to six-month horizon. To the extent possible, we intend to update our ideas on a periodic basis. This provides a feedback loop with our other ongoing research on the industry.
However, our team selections are not investment recommendations. Instead, they are meant to give structure to our analysis. The playbook allows us to articulate our views on the sector in a timely, concise manner. Our objective is to ensure we don't throw the baby out with the bathwater as sentiments on the sector remain bleak.
With that out of the way, the following is our starting XI. We will dive deeper into our rationale for our selections in the remainder of this insight (Exhibit 1).
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 726.047px;">Exhibit 1: China Financials | Silver Linings Playbook</td>
</tr>
<tr>
<td style="width: 726.047px;">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/213/768/original/image_768460236451623962508577.png?1623962508" class="editor-image img-responsive" data-smartkarma-image-id="213768"></figure>

Source: Our analysis
</td>
</tr>
</tbody>
</table>
Related Insights
<a href="https://www.smartkarma.com/insights/china-macro-consumers-remain-on-the-sidelines-as-their-home-equity-grows" target="_blank" data-smartkarma-citation="insights:53210" rel="noopener">China Macro: Consumers Remain on the Sidelines, as Their Home Equity Grows</a> 
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<a href="https://www.smartkarma.com/insights/boc-aviation-2588-hk-the-stars-don-t-look-bigger-but-they-do-look-brighter" target="_blank" data-smartkarma-citation="insights:52283" rel="noopener">BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter</a>

In the spirit of the long-awaited UEFA Euro 2020, we present our inaugural "China Financials: Silver Linings Playbook", which summarizes our views on the names that are best positioned to navigate an environment of progressively slower credit growth, tighter liquidity and rising defaults. 
Our screen consists of 100+ stocks in the A/H share universe, as well as a select number of international / non-traditional names that have significant exposures to China's financial system. We have a preference for larger-cap and liquid names, which are then filtered by our opinions on their fundamentals, value, momentum and recent trading volumes. We also try to make our selections versatile and less vulnerable to single-factor movements.
Each player's position on the pitch and the team formation itself convey incremental information about our thoughts on the sector's performance over a three to six-month horizon. To the extent possible, we intend to update our ideas on a periodic basis. This provides a feedback loop with our other ongoing research on the industry.
However, our team selections are not investment recommendations. Instead, they are meant to give structure to our analysis. The playbook allows us to articulate our views on the sector in a timely, concise manner. Our objective is to ensure we don't throw the baby out with the bathwater as sentiments on the sector remain bleak.
With that out of the way, the following is our starting XI. We will dive deeper into our rationale for our selections in the remainder of this insight (Exhibit 1).



Exhibit 1: China Financials | Silver Linings Playbook





Source: Our analysis




Related Insights
China Macro: Consumers Remain on the Sidelines, as Their Home Equity Grows 
Glut and Famine: We Might See Snow in China This Summer 
China Macro: PPI Peaks, while CPI Eases Tightening Fears 
China Macro: Exports Disappoint, but It's Still Early in the Game 
Glut and Famine: China's Monetary Conditions a Notch Tighter in May 
ICBC: The Bond Identity | A Zero-Growth Dividend Discount Story 
BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter

China Financials: Silver Linings Playbook

Fintech & EM-focused Analyst, KT Capital Group

Alec Tseung

Fintech & EM-focused Analyst

KT Capital Group

Principal investments and advisory firm that focuses on connecting the CIS countries with East Asia.

Principal investments and advisory firm

PICC Property & Casualty H / Equity Bottom-Up

<ul>
<li>China's motor insurance has been showing signs of growth after years of decline due to deregulations and reforms in the sector.</li>
<li>Motor insurance tailwind will benefit large players the most. Bullish on PICC P&amp;C since it's the largest player in motor insurance and to likely benefit the most from the tailwind.</li>
<li>Bearish on CPIC since its P&amp;C business is much smaller than PICC P&amp;C and Ping An P&amp;C, while its L&amp;H growth continues to be under pressure.  </li>
</ul>


China's motor insurance has been showing signs of growth after years of decline due to deregulations and reforms in the sector.
Motor insurance tailwind will benefit large players the most. Bullish on PICC P&amp;C since it's the largest player in motor insurance and to likely benefit the most from the tailwind.
Bearish on CPIC since its P&amp;C business is much smaller than PICC P&amp;C and Ping An P&amp;C, while its L&amp;H growth continues to be under pressure.  


AIA <a href="https://www.smartkarma.com/entities/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">(1299 HK)</a> 
AIA's proposed USD1.86bn minority investment in China Post Life marks a notable deviation from its long-held belief in maintaining control over its key operations. The transaction is touted as a barbell strategy that will give AIA's shareholders access to high-net worth clients on the one hand and the mass market on the other. In our view, the economics to China Post Life are clear, but the benefits to AIA may be more subtle (Exhibit 1).
The deal is fairly immaterial to AIA financially. At 1.34x historical P/B, the investment represents less than 0.6% of AIA's assets and 0.3% its IFRS capital. Valuation is in line with New China Life-A's <a href="https://www.smartkarma.com/entities/new-china-life-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:43:1" rel="noopener">(601336 CH)</a>, but we don't believe AIA is in it to turn a quick profit.
China Post Life stands to benefit almost immediately. The cash injection will boost the insurer's core solvency ratio from 110% to above 200%. But much more important is the promise of product ramp-ups, service upgrades, and sales training. On these fronts, China Post Life will be learning from the best.
The benefits AIA derives from the deal may be somewhat less tangible, but no less significant. The investment places the Hong Kong-based insurer front and center in the country's drive to widen the mass market's financial access. The unique position of the China Postal Group may open other doors down the road.
We are naturally skeptical of all insurance M&amp;As and joint ventures as so few of them have worked globally. That said, financial and executive risks seem to be well contained with the China Post Life transaction. While it may be an overstatement to call this transaction politically motivated, the potential regulatory and policy tailwinds it promises must be the envy of many of AIA's competitors.
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 100%;">Exhibit 1: AIA's China Footprint</td>
</tr>
<tr>
<td style="width: 100%;">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/216/534/original/image_81757729821625228313721.png?1625228314" class="editor-image img-responsive" data-smartkarma-image-id="216534"></figure>
Source: China Banking and Insurance Regulatory Commission (CBIRC), National Bureau of Statistics, Company disclosures, Our analysis
</td>
</tr>
</tbody>
</table>
Related Insight
<ul>
<li>
<a href="https://www.smartkarma.com/insights/china-financials-silver-linings-playbook" target="_blank" data-smartkarma-citation="insights:53013" rel="noopener">China Financials: Silver Linings Playbook</a> </li>
</ul>

AIA (1299 HK) 
AIA's proposed USD1.86bn minority investment in China Post Life marks a notable deviation from its long-held belief in maintaining control over its key operations. The transaction is touted as a barbell strategy that will give AIA's shareholders access to high-net worth clients on the one hand and the mass market on the other. In our view, the economics to China Post Life are clear, but the benefits to AIA may be more subtle (Exhibit 1).
The deal is fairly immaterial to AIA financially. At 1.34x historical P/B, the investment represents less than 0.6% of AIA's assets and 0.3% its IFRS capital. Valuation is in line with New China Life-A's (601336 CH), but we don't believe AIA is in it to turn a quick profit.
China Post Life stands to benefit almost immediately. The cash injection will boost the insurer's core solvency ratio from 110% to above 200%. But much more important is the promise of product ramp-ups, service upgrades, and sales training. On these fronts, China Post Life will be learning from the best.
The benefits AIA derives from the deal may be somewhat less tangible, but no less significant. The investment places the Hong Kong-based insurer front and center in the country's drive to widen the mass market's financial access. The unique position of the China Postal Group may open other doors down the road.
We are naturally skeptical of all insurance M&amp;As and joint ventures as so few of them have worked globally. That said, financial and executive risks seem to be well contained with the China Post Life transaction. While it may be an overstatement to call this transaction politically motivated, the potential regulatory and policy tailwinds it promises must be the envy of many of AIA's competitors.



Exhibit 1: AIA's China Footprint




Source: China Banking and Insurance Regulatory Commission (CBIRC), National Bureau of Statistics, Company disclosures, Our analysis




Related Insight


China Financials: Silver Linings Playbook 


AIA / China Post Life Deal: A Worthwhile Excursion

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Quantitative Analysis

<ul>
<li>We analyse the changes of A-H premium on 146 stocks over the last week. The average A-H premium was 132.9% as of Apr 5th.</li>
<li>The average A-H premium changed by 5.3ppt week-on-week, led by consumer staples, health care, real estate.</li>
<li>We analyzed A-H premium changes in the past week and highlight A-H premium changes for Baiyunshan, Jiangxi Copper, ZTE, Fosun Pharma, Air China, Joinn Lab.</li>
</ul>


We analyse the changes of A-H premium on 146 stocks over the last week. The average A-H premium was 132.9% as of Apr 5th.
The average A-H premium changed by 5.3ppt week-on-week, led by consumer staples, health care, real estate.
We analyzed A-H premium changes in the past week and highlight A-H premium changes for Baiyunshan, Jiangxi Copper, ZTE, Fosun Pharma, Air China, Joinn Lab.


A-H Premium Weekly (Apr 5th): 21 Stocks at 1Y High

China

New China Life Insurance Company Limited provides life insurance in local and foreign currencies, acts as an insurance agent, provides checks, claims and insurance consulting. The Company's main products include life insurance, accident insurance, health insurance products and services.

New China Life Insurance (601336 CH)

New China Life Sets up $1.4 Billion Fund for Property Investments

New China Life Insurance Co. Ltd. will partner with a unit of China International Capital Corp. (CICC) to set up a $1.4 billion fund to invest in...

Caixin Global

China Financials: Silver Linings Playbook

Our Silver Linings Playbook outlines our views on the China financials names that are most likely to remain resilient in the face of macro...

Stanley Tsai, CFA

China Insurance: PICC P&C Vs. CPIC

Bullish on PICC P&C outlook as it's expected to benefit the most from China's motor insurance recovery. Bearish on CPIC's because its P&C is much...

Alec Tseung

AIA / China Post Life Deal: A Worthwhile Excursion

AIA's proposed investment in China Post Life may be immaterial financially, but it may deliver intangible benefits in the way of regulatory and...

Stanley Tsai, CFA

A-H Premium Weekly (Apr 5th): 21 Stocks at 1Y High

We analyzed A-H premium changes in the past week and highlight A-H premium changes for Baiyunshan, Jiangxi Copper, ZTE, Fosun Pharma, Air China,...

Ke Yan, CFA, FRM