Summary

-As at the end of 1Q2015, net profits of China Life (or the Group) increased strongly by 69.77% y-y to RMB12.271 billion with the EPS of RMB0.43, better than our previous expectation;

-The Group's assets maintained stable growth, total assets increased by 2.2% to RMB2.30 trillion compared with the end of 2014, and net assets amounted to RMB302.075 billion, equivalent to the BVPS of RMB10.69, up 6.3%;

-As one of the largest institutional investors in China, China Life is still trying to improve the efficiency of the asset management, and its investment gains grew significantly under the current bull market. In 2014, the Group's net investment gains increased by 12.96% y-y to RMB93.548 billion, and it amounted to RMB38.386 billion in 1Q2015, up 58.78% y-y. Especially, fair value gains increased sharply by 269 times to RMB2.899 billion, compared with RMB104 million in 1Q2014, much higher than our expectation;

-Considering the Group's stable operating performance and the positive view of the market in future, we increase the 12-m TP to HK$52.70, around 40% higher than the latest closing price, equivalent to 15.1xP/E and 3.3xP/B in 2016E respectively. Maintain at Buy rating. (Closing price as at 19 May 2015)

An industry leader with the strong growth of profits

China Life's premiums maintained stable growth. As at the end of 1Q2015, gross premiums amounted to RMB153.45 billion, increased by 16.09% y-y, and net premiums grew 16.55% y-y to RMB 150.31 billion. In 2015, we believe the Group's premiums will increase faster than that of 2014 due to the good market environment. According to the lasted data by CIRC, the accumulated premiums of the Life insurance of China Life increased by 17.57% y-y to RMB173.8 billion by the end of April 2015.

Due to the stimulus of the bull market in 2014, China Life's investment gains increased largely, which became one of major profit drivers. By the end of Dec 2014, the Group's total investment assets amounted to RMB2.10 trillion, up 13.6% compared with the end of 2013, including 44.77% of bonds, and 11.23% of equity investments. The net investment yield was 4.71% while the gross investment yield was 5.36%. In 1Q2015, the Group's total investment assets achieved to RMB2.15 trillion, up 2.4% approximately. Net investment yield and the gross investment yield were 4.65% and 7.67% respectively. In 2014, net investment gains increased by 12.96% y-y to RMB93.548 billion, and it was RMB38.386 billion in 1Q2015, increased sharply by 58.78% y-y. Especially, fair value gains increased sharply by 269 times to RMB2.899 billion, compared with RMB104 million in 1Q2014. We expect China Life's investment gains would continue to increase largely in 2015.

However, considering the Group's stable operating performance and the positive view of the market in future, we increase the 12-m TP to HK$52.70, around 40% higher than the latest closing price, equivalent to 15.1xP/E and 3.3xP/B in 2016E respectively. Maintain at Buy rating. (Closing price as at 19 May 2015)

Risk

The growth might be lower than expectation due to the large volatility of investment gains;

Share price decreases sharply in the short run due to the deterioration of the market environment.

FINANCIALS

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