PICC P&C released 3Q results. NPAT grew 38.0% YoY to RMB26.75bn in 9M24, close to the upper bound of its profit alert (up by 20%-40%) . 3Q NPAT hit a record high of RMB8.26bn, driven by a surge of fair value gains at RMB7.4bn (vs 3Q23: -RMB4.6bn), thanks to the 3Q equity market rally. The insurer's CoR was 98.2%, up 0.3pct YoY due to increased catastrophic losses from the non-auto segment, whose CoR deteriorated 1.9pct YoY to 100.5% (CAS basis) in 9M24, translating into a worsened 3Q CoR of 105.3% (CAS basis), according to mgmt. Auto CoR improved 0.6pct YoY to 96.8% in 9M24, which partially compensated for the non-auto underwriting loss of RMB676mn. Dragged by non-auto, the insurer's 3Q underwriting loss reached RMB2.56bn, expanding 22.3% YoY from a low base (3Q23 UW loss: RMB2.09bn) affected by Typhoon Doksuri. Mgmt. mentioned in earnings call that the heightened 3Q non-auto CoR was adversely impacted by frequent rainstorms in Jul-Aug and Typhoon Yagi in Sep, causing net claims of each to amount to RMB2.8bn/RMB1.6bn by end Sep. With weaker-than-expected 3Q CoR, we think the insurer would need to pay more efforts in 4Q to meet its full- year guidance of auto CoR <97% and non-auto CoR <100%. We maintain FY24E auto/non-auto CoR forecast at 96.6%/99.4% , raise FY24-26E EPS forecast by 8%/7%/5% to RMB 1.44/1.51/1.60, and revise 12m-forward TP to HK$14.0, implying 1.09x FY24E P/BV (previous: 1.04x). Maintain BUY.

3Q non-auto CoR missed. In 9M24, non-auto CoR rose 1.9pct to 100.5%, as 3Q CoR deteriorated 1.8pct YoY to 105.3%, a miss against street view. Mgmt. attributed the rise of 3Q non-auto CoR to 1) inadequate net catastrophic loss to reach the threshold of reinsurance for excess of loss, and 2) a decrease of expense ratio was not reflected in current period CoR under new accounting standard. Net losses of Typhoon Doksuri were RMB3.5bn in 3Q23, higher than that of Typhoon Yagi (RMB1.6bn) and Typhoon Bebinca (RMB1.1bn) in Sep/Oct 2024, and rainstorms (RMB2.8bn) in Jul-Aug 2024. That said, despite lower net catastrophic losses per case, the aggregate amount (RMB5.6bn) in 3Q24 surpassed that of 3Q23 (RMB5.0bn) without claims amortization from reinsurance. According to mgmt., non-auto insurance incl. liability, commercial property, engineering and policy-oriented health suffered from an underwriting loss in 9M24. We think the insurer would pay more efforts in 4Q through risk mitigation, and maintain our FY24E non-auto CoR forecast at 99.4%.

Auto CoR marginally improved. Auto CoR improved 0.6pct to 96.8% in 9M24 contributing to 30.6% YoY growth in auto UWP to RMB71.2bn. 3Q auto CoR improved 1.4pct YoY to 97.4% (CMBI est), thanks to an optimized underwriting structure with the proportion of premiums from household vehicles up by 0.8pct YoY in 9M24. In 3Q24, auto premiums grew 4.6% YoY to RMB74.1bn, driven by an increasing number of insured vehicles. Avg. ticket size tended to stabilize in 3Q with positive QoQ growth as suggested by mgmt., which was also in line with our view . We maintain our forecast of 4.0% auto premium growth in FY24E and full-year auto CoR at 96.6%.

Investment gains from positive fair value changes. The insurer increased equity investment in 3Q, which bore fruit from the 3Q equity market rally. In 9M24, total investment income jumped 70.4% YoY to RMB27.5bn, implying a 12.6x YoY surge to RMB13.5bn in 3Q24 driven primarily by net fair value gains. Total investment yield (TIY) was 4.4% in 9M24, up 1.7pct YoY from 9M23. Looking ahead, we regard 3Q equity market rally as unsustainable, yet with improved allocation to FVOCI equities, we expect to see more stable investment income.

Valuation: The stock is now trading at 1.0x FY24E P/B, +2STD above 3-year historical avg. We revise up FY24-26E EPS forecast by 8%/7%/5% to RMB 1.44/1.51/1.60 to reflect the outperformance of investment income in 3Q24 and improved underwriting structure. We raise 12m-forward TP to HK$14.0 (previous: HK$12.8) implying 1.09x FY24E P/BV. Maintain BUY. Key risks involve deteriorated auto and non-auto CoR, weakened new vehicle sales, and increased volatility in capital market.