China Life Insurance Company, Ltd. (LFC) announced strong financial results for 2007, due to robust growth in premiums and investments. It is clear that China Life is the market leader in China's life insurance industry, where opportunities are significant. Although China Life still faces growing competition and a volatile capital market, and has not successfully completed its conversion to higher-margin products, its current valuation does not fully reflect its growth prospects, in our view. Therefore, we maintain our Buy recommendation on China Life shares.
On March 27, 2008, China Life announced its financial results for 2007. For the year ended December 31, 2007, the total revenues reached RMB 191,372 million, an increase of 29.9% from 2006. As at 31 December 2007, its investment assets were RMB 850,209 million, an increase of RMB 163,405 million, or 23.8%, from 2006. Net investment income reached RMB 44,020 million, up 76.5% from 2006. Its net investment yield for 2007 reached 5.76%, an increase of 1.49 percentage points from 2006. During the reporting period, the net profit was RMB 38,879 million, up 94.8% from 2006. EPS in 2007 was RMB 1.38 ($2.83 per ADS), compared with RMB 0.75 in 2006. Dividend per share in 2007 was RMB 0.42 ($0.86 per ADS), compared with RMB 0.14 in 2006.
Based on our estimate for fiscal year 2008 earnings per ADS, the company is trading at 22.1x, which is much higher than the industry mean. Based on our estimate for fiscal year 2009 earnings per ADS, the company is trading at 20.8x, which is still much higher than the industry mean. Using a P/E multiple of roughly 23.5x our fiscal year 2009 earnings per ADS estimate yields a target price of $60, which we believe reflects the company's prospects.
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