Target Lowered on Buy-Rated LFC

Tags: lfc
22 Jan 10:42pm
Posted by ZacksResearch
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Zacks senior insurance sector analyst Paul Cheung, CFA continues to advise investors to add the shares of the largest Chinese life insurance company, China Life (LFC), to their portfolio though after reducing the target price substantially:

'China Life announced strong financial results for the first three quarters of 2007, due to robust growth in premiums and investments. It is clear that China Life is the market leader in the country's life insurance industry, where opportunities are significant. Although China Life still faces growing competition and has not successfully completed its conversion to higher margin products, its current valuation does not fully reflect its growth prospects, in our view.

'The life insurance industry in China should see strong growth in the next decade. The industry in China is becoming more profitable, and this trend is likely to continue. China Life's extensive distribution network, solid client base, and improved management team should help the company to retain its leadership position in China's life insurance industry in the near future.

'Based on our estimate for fiscal year 2008 earnings per ADS, the company is trading at 29.3x, which is much higher than the industry mean. Based on our estimate for fiscal year 2009 earnings per ADS, the company is trading at 24.6x, which is much higher than the industry mean.

'Using a P/E multiple of roughly 28.7x our fiscal year 2009 earnings per ADS estimate yields a target price of $80, which we believe reflects the company's prospects. Therefore, we maintain our Buy recommendation on China Life shares.'

Read the full analyst report on LFC




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