Chinese Insurance Broker in the Sweet Spot

03/11/2010 12:00 am EST


Robert Hsu

Editor, China Strategy and Asia Edge

Robert Hsu, editor of China Strategy, says a Chinese insurance broker is profiting from the flood of surplus cash in China, which it is investing successfully.

An enormous transformation has taken place in China over the past year, and it is creating a wealth of investment opportunities now—and in the months and years to come.

China is transforming itself from a destination for international capital to a major source of capital.

According to [some experts,] Chinese capital accounted for as much as two-thirds of all major acquisition deals in the region, overtaking capital from foreign investments for the first time.

[And] while direct foreign investment [in] China is roughly where it was a year ago, the amount of Chinese capital invested abroad has also risen sharply. In addition, the pace of foreign acquisition is strong with both state-owned enterprises (SOEs) and private companies.

CNinsure (Nasdaq: CISG), an independent Chinese insurance intermediary company, reported a great fourth quarter and robust results for full-year 2009 [on March 2nd.]

Net revenues came in at $169.2 million, a 36.8% increase from the previous year and exceeding the company's previous guidance of 36% growth; income from operations was $47.8 million, a gain of 55.5% from 2008; net income attributable to shareholders was $44.1 million, a 56.9% gain from 2008; and basic and diluted net income per share was 96.6 cents and 95 cents—increases of [roughly] 55% from the previous year. 

The excellent results demonstrate that CISG's management team is able to execute their three-part strategy:

1. Deliver consistent results by developing new channels for distribution, such as telemarketing, online sales, and brokerage businesses;

2. Introduce more sophisticated products for big ticket sales; and

3. Launch bundled-sales campaigns. 

CISG's competitive advantage and strong network enabled the company to further strengthen [its] partnership with insurers during the quarter, making significant progress in the business clientele sector. 

I expect CISG [to] continue to offer new products and services—including more customized insurance policies, as well as consumer finance and wealth management products. The company is also implementing a fee-based revenue model, which has already been successfully used by several of its property & casualty (P&C) insurance agencies in 2009. 

With these moves, I believe that the company will continue to expand its market share in the fast-growing insurance and financial services industry in China. And this will continue to [boost the] shares.

Already, CISG has rocketed [more than] 50% off its February lows, boosted higher by a great fourth-quarter and full-year 2009 earnings report. As a result, shares are trading above our $23.50 Buy limit, so I recommend that you continue to buy CISG on dips under $23.50. (CISG closed Wednesday below $26—Editor.)

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