Zacks Investment Research upgraded shares of China Life Insurance Co. Ltd. (LFC) from UNDERPERFORM to NEUTRAL on May 31, 2012, with a target price of $37.00.
We are upgrading our recommendation on China Life to Neutral from Underperform, given its improving investment income, extensive domestic distribution channel, strong balance sheet, substantial cash flow and stable ratings. However, the company inherently faces substantial interest rate and currency risks, which limit the upside. China Life's full year 2011 earnings declined steeply from the prior year, due to low premium income and increased impairment losses. Operating cash flow also declined substantially due to increased claim expenses and adverse changes in the fair values of securities. Despite a strong brand name, significant competition on the domestic front limits earnings growth. However, the debt issue is expected to improve solvency margin, while fair liquidity will enable the company to take the high surrender rate in its stride. Overall, we expect limited upside in the near term.
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