China Life Insurance (LFC), with headquarters in Beijing, China, is China's largest life insurance company. The company is also a leading provider of annuity products and life insurance for both individuals and groups and a leading provider of accident and health insurance. The company announced disappointing financial results for the first quarter of 2008 due to a big decline in China's stock market.
It is clear that China Life is the market leader in China's life insurance industry, where opportunities are significant. 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.
Although China Life still faces growing competition and 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.
Based on our estimate for fiscal year 2008 earnings per ADS, the company is trading at 25.5x, which is much higher than the industry mean. Based on our estimate for fiscal year 2009 earnings per ADS, the company is trading at 21.4x, which is still much higher than the industry mean. Using a P/E multiple of roughly 26.1x our fiscal year 2009 earnings per ADS estimate yields a target price of $70.00, which we believe reflects the company's prospects.
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