HONG KONG: China Pacific Insurance, the country's third largest insurer, disappointed Hong Kong investors after it staged a lackluster debut yesterday.

The stock closed the day at HK$28.30, up only 1 percent from its offer price of HK$28, after dipping at one point to as low as HK$27.50.

Market watchers attributed the relatively weak showing of the stock to generally weakening sentiment recently, particularly for new shares.

"The broad market has been retreating recently after signs that some money is flowing out of the territory," said Mark To, head of research at Wing Fung Financial Group Ltd.

The benchmark Hang Seng index slumped nearly 10 percent to a low of 20,948 points on Monday from a high of around 23,000 on November 18 as investors fretted over the odds that liquidity is withdrawing from the local market.

The index rebounded on Tuesday and closed further higher yesterday at 21,329 points on bargain hunting.

Analysts are generally bullish about the medium- to long-term prospects for the insurer, citing its growth potential and the stock's fair valuation.

"The stock is a good candidate for long-term investors as it is fairly valued," Wing Fung Financial Group's To said.

At HK$28 per share, the stock is valued at about 1.8 times its forecast 2010 embedded value (EV), much lower than that of its peers.

China Life Insurance Co, the country's biggest insurer, currently trades at about 2.87 times its estimated 2010 embedded value and Ping An Insurance Group Co, the second largest, is valued at 3.71 times, according to an estimate by UBS.

Embedded value, a key valuation tool for insurers, adds today's value of future profits of an insurer's existing business to the market value of its net assets.

Patrick Yiu, associate director at CASH Asset Management Limited, also has a positive view on China Pacific Insurance's prospects in a longer term.

"With the IPO in Hong Kong, the stock is expected to post about a 30 percent increase in embedded value next year, higher than that of its peers," he said.

Based on an estimate by UBS, one of the sponsors for the insurer's Hong Kong IPO, China Pacific Insurance's embedded value is expected to grow 34 percent this year and 23 percent next year.

The growth forecasts imply an upside of at least 23 percent for the stock price of China Pacific Insurance, even assuming that its valuation will remain at the current level, a discount to that of peers.

China Pacific Insurance raised about HK$24.1 billion in its Hong Kong IPO, the second largest in the local bourse this year.

The insurer plans to use the net proceeds to enlarge its capital base, as it has no plans to buy assets overseas.

(HK Edition 12/24/2009 page6)