Event: according to the three-quarter report, Tianmao Group achieved 800 million yuan in net profit in the first three quarters, a decrease of 0.5% compared with the same period last year. The adjustment of the business structure of Guohua Life Insurance, the company's holding subsidiary, in the first three quarters was the main reason for the slight decline in the company's net profit. We believe that the company's core marginal changes in the first three quarters of 2017 include: (1) the year-on-year growth rate of investment income is more than 100%, the total rate of return on investment is higher than that of the same industry, and the investment side has obvious advantages; (2) the fixed increase has been approved by the Securities Regulatory Commission. Guohua Life Insurance has further improved its financial strength; (3) the product structure has been gradually adjusted, and the proportion of new investment fees paid by insured households in the first eight months of 2017 has decreased to 6% from 33% in the same period last year.
Guohua Life Insurance is the core of the company's business. Tianmao Group owns 51% of Guohua Life shares, and the company has included Guohua Life in its consolidated statements since March 16, 2016. According to the data disclosed by Tianmao Group, Tianmao Group, as an investment holding company, is engaged in insurance, pharmaceutical and chemical business through subsidiaries. Among them, the insurance business income of Guohua Life Insurance, the holding subsidiary, accounts for more than 99% of the company's main business income, which is the company's core business.
The fixed increase obtains the approval document, the financial strength enhances. On July 25, 2016, the company issued a fixed increase plan, which intends to raise no more than 4.845 billion yuan, all of which will be used to increase the capital of Guohua Life Insurance. On September 21, 2017, the fixed increase plan of Tianmao Group was approved by the Securities Regulatory Commission. The company's non-public offering will not exceed 700 million shares, and the reserve price will not be less than 6.92 yuan per share.
Investment income has greatly increased, and attention has been paid to the allocation of fixed-income assets.
(1) the rate of return on investment is higher than that of the same industry. In the first three quarters of 2017, the company achieved an investment income of 1.9 billion yuan, a year-on-year growth rate of about 100%. In the first half of the year, the company's annualized total investment income reached 7%. It is higher than the total investment return of listed insurance companies in the same period (Ping an 4.9% / Xinhua 4.9% / Guoshou 4.62% / Taibao 4.7%). The company's outstanding investment performance has led to an increase in the overall value.
(2) pay attention to fixed income and alternative asset allocation. In the first half of 2017, Guohua Life focused on the allocation of fixed-income assets such as bank deposits, while increasing the allocation of non-standard assets such as high-credit-rated trust products and debt investment plans. By the end of the first half of the year, the proportion of deposit assets of Guohua Life Bank reached 8%, up 3 percentage points from the end of 2016, while the proportion of trust plan assets reached 23%, up 12 percentage points from the end of 2016. In addition, the share of stocks and fund investment remains at about 16%. It is expected that the rising annual interest rates in 2017 and the recovery of the market will further increase the company's total return on investment to about 7.2%.
The product structure has been gradually adjusted and the debt duration has been continuously improved. From January to August 2017, Guohua Life achieved a total scale premium of 39.7 billion yuan (YoY+6%), of which the original insurance premium was 37.9 billion yuan, a year-on-year increase of 95%, and the proportion also increased to 95% from 58% in the same period last year. At the same time, the new payment of investment funds for insured households decreased significantly by 79% compared with the same period last year, accounting for 6% from 33% in the same period last year. Under the background of "insurance surnamed Bao", the company's product structure has been gradually adjusted. From the China report data, the company's long-term savings and risk protection business scale premiums have accounted for more than 70%, Guohua Life Insurance debt has continued to improve, and it is expected that the proportion of the company's long-term protection products will further increase throughout the year, promoting the continuous improvement of product value.
Investment advice: buy-An investment rating, 6-month target price of 11 yuan. We estimate that the EPS of the company from 2017 to 2019 is 0.41 yuan, 0.47 yuan and 0.55 yuan respectively.
Risk tips: policy risk / interest rate risk / macro risk / market risk
