On Jul 24, 2013, we upgraded China Life Insurance Co. Ltd. (LFC - Analyst Report) to Outperform from Underperform based on its strong brand name, an extensive domestic distribution channel, strong investments and stable ratings.
Why the Upgrade?
After posting disappointing financial results over the past few quarters, China Life witnessed a 79.1% surge in operating earnings in the first quarter of 2013. The operating profit of this Zacks Rank #1 (Strong Buy) stock increased to RMB12.8 billion ($2.04 billion) from RMB6.9 billion ($1.09 billion) in the year-ago quarter due to higher investment yield and lower impairment losses. Moreover, total assets, return on equity and shareholder equity improved during the quarter.
Driven by this turnaround in China Life’s performance and the improving Chinese economy, analysts raised their estimates for the company’s 2013 earnings. This resulted in a 20.6% surge in the Zacks Consensus Estimate during the last 30 days to $2.58 per share, up 177.4% over 2012.
Moreover, the investment income of China Life has shown substantial improvement over the past few years. Investment income increased 37.2% in the first quarter of 2013 due to a change in the company’s approach toward investment and increased investment in fixed income investment assets.
Moreover, China Life has the most extensive distribution and service network among all insurance companies operating in China. The company’s distribution network of exclusive agents, direct sales representatives, bancasurrance outlets, customer service managers and financial advisers is spread across the country, making it one of the largest brands with one of the biggest customer base in China.
Other Stocks to Consider
Other stocks in the life insurance business that are worth considering are American Equity Investment Life Holding Co. (AEL - Snapshot Report) – Zacks Rank #1 (Strong Buy), Health Insurance Innovations, Inc. (HIIQ - Snapshot Report) – Zacks Rank #2 (Buy), and StanCorp Financial Group Inc. – Zacks Rank #2 (Buy).