As The Chinese Insurance Industry Booms, China INSOnline Corp. Is Likely To Be A Huge Beneficiary

For investors who are looking to allocate capital for the long term, Chinese exposure is a must. China is the fastest growing economy in the world, and is in the midst of what will likely be a multi-decade period of rapid growth and economic expansion. Investors across the world are positioning themselves to profit from these trends by buying stock in Chinese companies that trade on American exchanges. In some cases, the gains have been extraordinary. Take for example, Baidu

, which operates China's most popular search engine. Year to date, BIDU shares have climbed over 85%. Over the last 5 years, the stock has appreciated well over 500%. Other popular and profitable Chinese companies with exposure to the fast growing internet space include NetEase.com

, Shanda Interactive Entertainment

, SINA Corp.

, Sohu.com

, Perfect World Co.

, and Changyou.com

. Another much smaller, yet profitable, company that trades on the Nasdaq exchange is China INSOnline Corp.

. This stock looks like a prime speculative candidate which could pay off in a big way down the road. The firm, which is an Internet services and media company focusing on the Chinese insurance industry only has a market cap of $14 million. While that denotes risk, it also suggests that a tremendous growth opportunity could lie ahead. China INSOnline Corp. (

) is incorporated in Delaware, and has been traded on the Nasdaq since July 1, 2008. The company engages in the business of provision of "one-stop-shopping" insurance services, online insurance advertising, and insurance software solutions in the People's Republic of China. The company's goal is to combine its web-portal

and knowledge and expertise of the Chinese insurance industry to become the number one online insurance products and services provider in the young and fast-growing Chinese insurance agency industry. China INSOnline Corp. has incorporated a number of different revenue streams in its business model. Its online insurance community charges an annual fee for advertising agents and insurance companies. The company also provides website construction services for insurance agents and institutions who then become part of the Soobao community. In addition, through its soobao.com platform, CHIO facilitates insurance sales and claims services for customers both online and offline. It also provides value added services in the insurance industry such as comprehensive financial planning and professional headhunting. As recently as 2007, there were only 103 insurance companies (underwriters) in China, compared to over 5,000 in the U.S., 2,000 in Germany, 800 in the U.K., and 200 in Hong Kong. Clearly, the Chinese insurance industry is only in its infancy, but there are tremendous growth opportunities, the likes of which simply do not exist in more mature economies. At present, China's population is more than 1.3 billion people, with only about 180 million that would be considered middle class. The Chinese middle class, however, is growing rapidly and this emerging trend has the potential to drive huge profit growth in a wide variety of consumer oriented sectors. Currently, there are approximately 200 million internet users in China. Middle class Chinese citizens, who own cars and other personal property, tend to be e-commerce savvy. This represents a strong and rapidly growing niche market for a company like China INSOnline. China currently has the lowest per person insurance coverage ratio among developed nations despite the fact that the total number of vehicles in China is growing at a tremendous rate and auto insurance is mandatory. This is creating enormous demand for vehicle insurance in China, a trend that CHIO is attempting to capitalize on. Furthermore, CHIO has limited competition in its rapidly growing market. It has one of the few national insurance agency licenses issued by the China Insurance Regulatory Commission (CIRC) serving the entire country. According to China INSOnline's management, there are only two companies which have similar business models to its, and one has not obtained the proper permits from the government for internet and insurance agency operations, while the other has achieved significantly less market penetration. In the property and vehicle insurance segment, CHIO has partnered with some of China's most respected insurance companies, including China Life And Casualty Insurance Co., China Pacific Insurance Co., and China United Property Insurance Co., among others. In the life insurance market, the company has partnered with Great Wall Life Insurance Co., Taikang Life Insurance Co. and New China Life Insurance. For fiscal 2009, China INSOnline reported revenues of nearly $18 million and net income of $9.18 million. The company has a history of profitability, but the shares currently trade at what seems an almost absurdly low P/E multiple of 1.45. This is likely a result of the steep sell off in Chinese stocks earlier this year and the company's small market cap. Without question, CHIO is a speculative play, but with the niche growth market that it operates in, a record of profitability, and the explosive long term outlook for the Chinese economy this stock may pay off big time in the coming years.