By Robert Hauver
12/4/10 update: CISG has responded vigorously to negative allegations from a small research firm, concerning its employee incentive “Scorecard” plan and its gross margins. Firstly, many of the plan’s incentive programs are paid for by CISG insurer partners, at no cost to CISG. Secondly, CISG Chairman Hu stated that any and all expenses related to this plan have been properly reported in CISG’s financial reports, and that CISG’s incentive plan was approved by the national Chinese insurance review board. CEO Hu also said in the Dec. 3rd conference call that CISG’s margins can’t be logically compared to the much smaller firms that the analyst used in her report, since newer firms often have much smaller margins. He pointed out that it took CISG 6 years of lower margins until it turned a profit in 2004, and that , as its volume has grown, CISG is able to earn much better brokerage commissions from its insurer partners. (CISG’s volume grew over 10 times from 2005 to 2010.) CEO Hu also mentioned that the analysts reports may be part of a short selling campaign launched by hedge funds.
CISG has also announced the following:
- A $100 million share buyback program – This is approx. 12% of their stock, a significant portion, and should serve to bolster CISG’s metrics a great deal, in addition to decreasing the supply of shares in the market.
- 6-month moratorium on CISG directors/officers selling shares – CISG’s directors/officers will not sell any shares over the next 6 months.
- CEO Hu and CEO Ge have personally purchased 100,000 shares since Nov. 24th
Looking for undervalued, Chinese dividend paying stocks with strong earnings, that will share in China’s future growth? Take a look at CNinsure, (CISG), a dividend stock whose Q3 2010 net income rose 43%, and revenue rose 30%. After CISG reported these stellar Q3 earnings, the stock got beaten up in the market, (probably by short sellers – the short float is at 7.10%), before bouncing right back 13% the next day, when the firm’s officers did the right thing, and said that they’ll be buying shares of their company. CEO Yinan Hu said in a statement that the purchase is an act of confidence in CNinsure’s stock, and said CFO Peng Ge will also purchase shares. Hu didn’t say how much stock the managers planned to purchase, but said the shares were undervalued. Cninsure President Qiuping Lai attended a Forbes Asia dinner in Hong Kong on Tuesday, and said that business prospects were good, without referring to any specific earnings figures.
During the earnings call, CEO Hu said, “Robust growth of our three existing business lines continued into the third quarter with the life insurance business and claims adjusting business growing 109.1% and 34.3% year-over-year, respectively. The overall commission rate from the property and casualty insurance business increased over the previous quarter, which led to a year-over-year growth of 6.7% in our property and casualty insurance business in the third quarter as compared to year-over-year decline of that in the second quarter. We believe there is still room for further improvement in our property and casualty insurance commission rate.”
Although CISG’s modest 1.21% dividend yield* prevents it from being listed in our High Dividend Stocks by Sector Tables, you can still earn double-digit high options yields from this stock, through these 2 options trading strategies :
1. Covered Calls - Selling covered call options now would achieve a nearly 23% annualized static yield, even without adding in any potential price gains:
Our Covered Calls Table includes more details on the above trade, which could earn over 30% annualized, if the shares get assigned.
Here’s an additional kicker – there’s a wide range of prices between the $2.85 call option premium listed above, and the ask prices, so you may be able to sell these covered call options at an even higher price, and improve your yield.
For example, I was able to sell these same July $22.50 calls for $3.20 on Friday, even though the bid was only $2.85, which increased the static yield to 25.47% annualized, with a potential assigned yield of over 31%.
2. Cash Secured Puts – Selling cash secured put options could also earn you a 20%-plus annualized yield, based upon the Friday’s $2.55 bid:
You’ll also find more details on this and other cash secured put options selling trades in our Cash Secured Puts Table. Once again, there’s a wide bid-ask price spread for these options, so you may be able to sell at a higher price, and earning high options yields better than the one shown above.
* NOTE: Many financial websites incorrectly list CISG’s dividend yield as being over 4.5%. CISG has an annual payout, not quarterly. Their 2010 ex-dividend date was in May, and their annual payout was $.26/share.
CISG expects its net income attributable to the Company’s shareholders to grow by approximately 32% for the fourth quarter 2010, vs. Q3 2009, excluding non-recurring investment income incurred by business combination achieved in stages. The Q3 earnings report also states, “We are now building the groundwork for our e-commerce insurance, insurance brokerage, consumer finance and wealth management businesses in an effort to turn our blueprint for the next five years into reality. Examining all the opportunities and challenges, we firmly believe that the Company will be able to continue its strong growth momentum for the next few years.
CNinsure Inc., founded in 1998 and headquartered in Guangzhou, is a leading independent insurance intermediary company operating in China. CISG’s distribution network reaches many of China’s most economically developed regions and affluent cities. It distributes a wide variety of property and casualty insurance products and life insurance products underwritten by both domestic and foreign insurance companies operating in China, and offer insurance claims adjusting services, such as assessment, survey, authentication and loss estimation, as well as other insurance-related services to individuals and institutions. As an insurance intermediary, the Company is not exposed to any underwriting risks.
Over the past 11 years, CNinsure has established a robust distribution and service network across China. As of June 30, 2010, it had 55 affiliated insurance intermediary companies operating in the PRC, of which 49 are insurance agencies, three are insurance brokerages and three are insurance adjusting companies. With 46,857 sales professionals, 1,358 claims adjustors and 576 sales and service outlets, its distribution network reaches 23 provinces, including some of China’s most economically developed regions and affluent cities in China, such as Beijing, Shanghai, Guangzhou and Shenzhen. The company is a member of this year’s Forbes Asia Best Under A Billion List.
CISG stacks up well vs. its Insurance Broker peers:
Disclosure: Author is long CISG shares, and short CISG puts and calls.
Disclaimer: This article is for informational purposes only.