Zhongtai Securities has issued a research report indicating a slight upward revision to its net profit forecasts for PICC P&C (02328). The updated projections for 2026 to 2028 are 416.60 billion yuan, 442.04 billion yuan, and 466.91 billion yuan, respectively, compared to prior estimates of 413.12 billion, 438.91 billion, and 463.36 billion yuan. This adjustment follows updated assumptions regarding underwriting profits and investment performance. The corresponding year-on-year growth rates are 3.2%, 6.1%, and 5.6%, with projected Return on Equity (ROE) of 13.7%, 13.3%, and 13.0% for those years.
The firm employs a PB-ROE valuation framework, utilizing an adapted Gordon Growth Model where PB = (ROE - g) / (r - g). Assuming a long-term ROE of 12%, a sustainable long-term growth rate of 1.5%, and a cost of equity of 8.5%, the bank assigns a target price-to-book (PB) multiple of 1.5x, maintaining its Buy rating.
Analysis of Recent Performance Trends
The report provides a comprehensive review of PICC P&C's stock performance over the past five years, tracing a path from "earnings reversal" to "dividend recovery" and now to "improving industry fundamentals." The analysis segments this period into four phases based on PB ratios and dividend yields. In the first quarter of 2026, the company's net profit fell by 23.7% year-on-year, impacted by significant stock market volatility and a high equity allocation, leading to a substantial stock price decline amid shifting market risk appetites.
The company's current PB ratio, based on expectations for the end of 2026, has retreated to 0.91x, with an anticipated 2026 dividend yield of 5.7%. As market styles rebalance, the Hong Kong-listed high-dividend sector is expected to regain investor favor. Notably, holdings through the Stock Connect scheme have reached a record high of 30.92% of the total shares, signaling a gradual recovery in market confidence.
Stable and Predictable Dividend Policy
As a rare pure property and casualty insurance play, PICC P&C possesses inherent advantages in earnings stability and the consistency of its dividend policy, which have been further amplified post-implementation of new accounting standards. Under the old standards, the company's dividend payout ratio needed to remain above 40%. With its parent group focusing on the long-term stable growth of dividends per share (DPS) to maintain a reasonable and investor-friendly dividend yield, PICC P&C is required to provide a more stable stream of cash dividends as the group's core profit contributor.
For the full year 2025, the company's DPS was 0.68 yuan per share, representing a 25.9% increase year-on-year, alongside a cash dividend payout ratio of 37.5%.
Auto Insurance: Service Capability as a Key Differentiator
In the era of a saturated auto insurance market, service capability has become a decisive competitive factor. The company's guidance for the auto insurance combined ratio (COR) indicates a continued push for improvement, barring major catastrophic events, with a focus on enhancing the underwriting performance of new energy vehicle (NEV) insurance. Reviewing the data from Q1 2025 to Q1 2026, the company's cumulative annual auto insurance COR for five consecutive quarters was 94.0%, 94.2%, 94.8%, 95.3%, and 93.5%, respectively.
Since 2026, negative growth in new vehicle sales has slightly hampered premium growth. The company's NEV insurance business has already achieved underwriting profitability, demonstrating its leading risk-pricing capabilities and operational quality control. With factors such as a gradual decline in NEV claim frequency, improved driving habits, and advancements in assisted driving technology, the COR for NEV insurance is expected to decline further.
Non-Auto Insurance: Regulatory Changes and Profit Expansion
The company possesses six core competencies: precise and rapid pricing, comprehensive channel development, rigorous underwriting, professional claims services, extensive reinsurance support, and advanced risk mitigation services. For lines like commercial property insurance and employer's liability insurance, which were among the first to implement the "unified filing and execution" regulatory rule, expense ratios have seen a significant decline.
The report assumes an annual reduction in the overall expense ratio of approximately 2 percentage points. The "payment before policy issuance" rule has improved accounts receivable, benefiting the accumulation of investment assets. Considering the timing of insurance service revenue recognition and the coverage of the new rule across non-auto business, the impact on the overall non-auto insurance COR is estimated to be less than 1 percentage point. The firm expects the new rule to contribute approximately 1.2 billion yuan to the non-auto business's underwriting profit for the full year 2026.
Key Risk Factors
The report highlights several risks: a sustained downturn in new vehicle sales dragging on auto insurance premium growth; a greater-than-expected demand impact from the deepening implementation of the "unified filing and execution" rule in non-auto business; persistently high frequency of natural catastrophes increasing loss ratios; significant volatility in equity markets adversely affecting investment returns and net profit contributions; a substantial rise in risk-free interest rates; and risks associated with outdated information or calculation errors in the research report.
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