Property Insurer Gets ‘Sell’ Rating Amid China’s Bull Market

Leading Chinese brokerage Citic Securities issued a rare “sell” rating Thursday for A-shares of property insurer PICC, citing overvaluation after the stock more than doubled in this year’s bull market.

A-shares of The People's Insurance Co. (Group) of China Ltd. (PICC) currently trade at more than double their proper value, Citic said in a note on the stock. Citic set a target range for PICC of 4.71 yuan ($0.70) to 5.38 yuan this year, compared with the Thursday close of 12.83 yuan.

China’s stock markets were some of the world’s worst performers in 2018, plunging into bear territory by midway through the year even as other global markets boomed. But they have done an abrupt about-face since the start of 2019 and are now firmly in bull territory. Shares are up nearly 25% since January, spurring some worries of a potential bubble. 

PICC is emblematic of the euphoria now surrounding many Chinese stocks. The shares have climbed by the daily 10% limit on a number of recent trading days including Thursday, and the current price of 12.83 yuan is more than double where PICC traded at the start of the year.

The rapid rise prompted PICC to issue its own risk reminder to investors Thursday. In a note, the company pointed out that its price-to-earnings (PE) ratio stood at 28.16 as of March 5, well above the average of 20.3 for seven publicly traded Chinese insurers. The same notice said PICC’s profit rose 16.3% to 12.1 billion yuan in the first nine months of last year.

Citic Securities said PICC’s shares should trade at a PE ratio of 13.1 to 15, with a price-to-book ratio of 1.25 to 1.42.

Even as the company’s China-listed A-shares have boomed, investors have been less enthusiastic toward the company’s H-shares in Hong Kong, which are mostly traded by foreigners. PICC’s H-shares now trade at a PE ratio of about 8 and are up by a more modest 16% since the start of the year. Citic Securities said the Hong Kong-listed stock is undervalued and gave it an “add” rating.

Contact reporter Yang Ge (geyang@caixin.com)