泛华金控(FANH)
　　Action
　　We are upbeat on Fanhua’s investment value, given its high growth potential, stable increase in cash flow and dividend payment. Substantial growth in profit and valuation expansion will offer 42% upside in share price. Maintain BUY and raise TP 52% to US$41.
　　Reasoning
　　High growth potential for insurance intermediaries in China. First, insurance intermediaries benefit from the strong growth of the life insurance market. We expect Chinese life sector premiums to rise at a 15% CAGR in the next decade. Second, small& mid-sized insurers that lack their own agent teams have relied more on intermediaries to sell policies, as CIRC began reining in bancassurance since 2016. This will enable Fanhua to outgrow the insurance sector continuously . We expect Fanhua’s 2017e and 2018e FYP to jump 145% and 60% YoY .
　　Focus on regular life policies to bring stable increase in cash flow and dividend payment. Fanhua’s life insurance business profits from the commission spread of regular policies (25% for FYP and 2–10% for renewals). We see a number of advantages in this business model. First, new plans should generate constant revenue in the future. Second, the rising exposure to the commission spread from renewal premiums should ensure steady profit growth over the long term. Third, Fanhua is free from the risks in insurance business.
　　An undervalued sales channel; valuation expansion to bring attractive investment returns. We expect Fanhua’s 2017e–2019eprofit to rise 157%, 49% and 39%. Its valuations should also expand amid growing earnings and dividends, increased market attention and rising turnover . Fanhua’s agent headcount is around half that of New China Life (~100k vs. ~180k). However, Fanhua’s market-cap is merely 1/17 that of New China Life. Fanhua is undervalued, in our view.
　　Earnings forecast and valuation
　　We raise our 2017e–2019e forecast net profit 9%, 16% and 49%. We raise our TP 52% to US$41 (implying 25x 2018e P/E or 28x P……[China International Capital Corporation Hong Kong Securities Limited]
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