Main points of investment:
From insurance + chemical + medicine to focusing on the strategic transformation of the main life insurance industry, Guohua Life Insurance plans to be listed as a whole. Since 2017, Tianmao Group has mainly engaged in insurance + chemical + pharmaceuticals. From 2018, the company began to spin off its non-life insurance business and successively sold Axa Tianmao Automotive Insurance, Tianmao Chemical and Encyclopedia Hendi. On August 27, 2019, Tianmao Group disclosed that it intends to issue shares, convertible bonds and cash payments to shareholders of its holding subsidiary Guohua Life Insurance, Hainan Kaiyi, Shanghai Boyonglun, Ningbo Hanshengxin. The way of issuing shares to Hubei Hongtai, Wuhan Real Estate and Jiangan State assets to absorb and merge Guohua Life Insurance. If this major asset restructuring is successfully completed, Guohua Life Insurance will be listed as a whole and is expected to become the first listed small and medium-sized insurance company in China.
At present, Guohua Life Insurance is mainly engaged in the wholesale payment of annuities. Tianmao Group holds 51% stake in Guohua Life Insurance. By the end of 2018, Guohua Life's total assets were 170.78 billion yuan. In 2018, the original premium income was 34.53 billion yuan, the scale premium income was 57.4 billion yuan, the market share was 1.3% and 1.6% respectively, and the net profit was 2.06 billion yuan. The company's product sales are mainly through bancassurance channels, accounting for nearly 95%, while individual insurance accounts for a low proportion. There is still room for improvement in channel management and control capabilities. In the term structure of premiums, the bulk delivery of new orders is the main form. In 2018, the proportion of bulk delivery business is as high as 91.7%, which is still in the extensive development stage promoted by bargaining. In terms of products, the top five products of the company's premium income over the years are mainly annuity products, and the premium concentration is higher than that of listed peers. From the perspective of value caliber, the internal value of the company increased by 14% and-4.3% respectively in 2017 and 2018, and the effective business value has increased rapidly in recent years. However, the ratio of effective business value / embedded value is significantly lower than that of listed peers. In 2019, with the combined impact of the company's 9.5 billion yuan capital increase and marginal improvement in investment income, we expect the embedded value to increase by 92.1% to 34.15 billion yuan compared with the same period last year. In terms of asset-side allocation, the company's investment structure is generally more radical. The proportion of bond allocation (11.8%) is low, while the proportion of trust (20.2%) is significantly higher than that of the same industry, and the proportion of stock base allocation fluctuates higher and less stable. The relatively low cost of capital is the cornerstone of the continued operation of life insurance companies in the future. We believe that Guohua Life still has much room for improvement in its current business structure. We estimate that the average debt cost of the company in 2018 is 6.08%, which is significantly higher than that of listed peers, and there is still room for improvement in business structure. According to the company's management planning, Guohua Life Insurance will accelerate its optimization and explore the embedded value in the future in order to enhance the strength of the enterprise. The overall development plan is to stabilize growth, adjust the structure, and focus on the development of long-term savings and long-term security business. In the first half of 2019, the company's health insurance premium income reached 396 million yuan, an increase of 50.38% over the same period last year, accounting for a very low proportion. Whether the product structure can be continuously improved in the future needs continuous tracking and observation.
Investment advice: when we forecast the performance of Tianmao Group, we do not take into account the impact of this major asset restructuring on performance. Tianmao Group is expected to make a net profit of 15.31,18.11 and 1.533 billion yuan respectively from 2019 to 2021, with year-on-year growth rates of 15.3%, 18.3% and-15.4%, respectively. Using the segment valuation method, Guohua Life is valued at 50.448 billion yuan (taking into account growth, 70%PB+30%PEV valuation method), Axa balance, chemical and pharmaceutical business are valued at 33.294 billion yuan according to the transfer price, and the current share price corresponds to 11.0X, 9.6X and 10.2X PE for 19-21, taking into account the uncertainty of this non-public offering.
Risk hint: from the perspective of this major asset restructuring, the main risks include: approval risk, transaction suspension, termination or cancellation risk, debt debt transfer risk and the risk of issuing convertible bonds; from the overall listing subsidiary Guohua Life Insurance, the main risks include: the transformation does not meet expectations risk, investment return risk.