Sinolink Securities released a research report stating that looking ahead to next year, with a large volume of fixed deposits maturing, insurance products present a favorable option for low-risk capital seeking long-term wealth preservation and appreciation. Expectations for liability-side growth in the insurance sector are becoming clearer. The long-term fundamentals remain strong, while short-term growth prospects are improving. Current insurance valuations remain low, offering attractive investment value.
Meanwhile, as brokerages advance mergers and deepen international business expansion, leading brokers with low valuations have substantial room for earnings recovery, making them increasingly appealing for allocation. Sinolink Securities highlights the following key points:
**Brokerage Sector Faces a Notable Divergence Between Performance and Valuation** On one hand, the industry maintains robust profit growth with sound fundamentals. On the other, stock prices and valuations remain under pressure. As of November, the brokerage sector’s year-to-date gains have dropped to 0%, underperforming the broader market by 15 percentage points. The sector’s PB ratio has declined to 1.35x, standing at the 33rd percentile over the past decade.
The report suggests that as consolidation progresses and international business expands, leading low-valuation brokers have significant earnings recovery potential, enhancing their investment appeal.
**Investment Recommendations:** 1. **Brokerages with Strong Fundamentals but Undervalued Earnings:** - Listed brokers reported better-than-expected Q3 earnings, yet their PB (LF) remains at just 1.35x. Recommended picks include high-quality brokers with valuation-performance mismatches, such as Guotai Junan and Haitong Securities. Also, watch for brokers with high A-H share premiums and M&A themes.
2. **Sichuan Shuangma:** - Strong positioning in tech-related sectors, with venture capital investments likely to benefit. The company is expanding into gene therapy and deepening its biopharma industry chain. Portfolio companies under its fund management include Yitang Semiconductor, Xi'an Yicai (listed on STAR Market), ESWIN Computing, and Qunkong Technology (applied for HKEX IPO). Other investments like Fourier (new funding secured), Chery Auto (listed on HKEX), and Huisuanzhang (HKEX application filed) are accelerating their IPO processes.
3. **Diversified Financials with Strong Earnings Growth:** - Hong Kong Exchanges and Clearing is poised for a potential "Davis Double" as it benefits from deepening Stock Connect programs and increased A-share listings in Hong Kong (average daily turnover surged 102% YoY in the first ten months). Other notable names include Jiufang Zhitou Holdings, Yixin Group, and Sheng Ye.
**Innovative Drugs Included in Shanghai Group Insurance by December 2025** Shanghai’s new group health insurance plan, expected to launch in December, will cover over 80 high-value innovative drugs, marking the first commercial health insurance product to adopt an innovative drug list. Key features include: - **Lower Deductibles:** Significantly below those of million-yuan medical insurance and Hui Min Bao, ensuring complementarity rather than overlap with basic medical insurance. The out-of-pocket cap is set at ¥35,000, mitigating catastrophic medical expenses. - **Expanded Drug Coverage:** Among 121 drugs vying for inclusion, 38 oncology-related drugs have been added—double the number in Shanghai’s Hui Min Bao. - **Payment Structure:** For companies with an average employee age of 35, annual premiums per employee are around ¥2,000 (vs. ¥1,000 for existing supplemental plans). Since funding combines employer and individual contributions—with Shanghai’s medical insurance accounts supporting payments—premium increases are fully offset, leaving employer costs unchanged.
Insurers conservatively estimate initial annual sales of ¥5–10 billion for the new plan. Based on a 10% innovative drug claim rate (aligned with national Hui Min Bao trends), annual payouts could reach ¥500 million–1 billion, unlocking billions in innovative drug market potential and expanding commercial insurance payment channels.
**Insurance Sector Outlook:** With strong New Year sales momentum, new premium growth is expected to hit double digits. New products offer better "value" by capturing spread gains. Bancassurance channels, leveraging account advantages and client resources, should also see double-digit growth, while major insurers gain market share amid dividend insurance transitions.
**Top Picks:** 1. Leading insurers with solid New Year sales prospects and superior business quality (low liability costs, strong asset-liability matching). 2. Top non-auto P&C insurers and insurance groups benefiting from premium-regulation alignment.
**Risks:** 1. Equity market volatility; 2. Sharp declines in long-term interest rates; 3. Slower-than-expected capital market reforms.
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