Introduction to this report:
In the context of the company's focus on the “135th Five-Year Plan” strategy and expanding international business, the profitability of all business lines is expected to improve, and ROE is expected to increase significantly, further raising the valuation level.
Summary:
The target price of HK$1.86 per share covered the “increase in holdings” rating for the first time: China Reinsurance comprehensively promoted the “reinsurance business as the core, with international business as a breakthrough starter” strategy. Margin improvements in ROE are expected in the company's different business segments, which will jointly drive a steady rise in overall ROE and increase the company's overall valuation. The net profit of China Reinsurance in 2019-2021 is predicted to be 6.122 billion yuan, 7.141 billion yuan and 8.366 billion yuan. Through the comparable valuation method and the ROE/PB valuation method, the target price of HK$1.86 per share was given, covering the “increase in holdings” rating for the first time.
The reinsurance business is the core, and the international business is a breakthrough starter: the company is currently focusing on the “one core, three breakthroughs, five leaps” strategy, focusing on the core reinsurance business, with internationalization as the breakthrough focus. We expect that as the company's global internationalization strategy layout progresses, the share of overseas business will continue to increase. It is expected that the profitability of reinsurance will increase, and that the global layout will increase the degree of risk diversification, which will reduce the volatility of the company's profits.
ROE in various sectors is expected to improve marginally, driving up the overall valuation: as the internationalization strategy progresses, China Realty Insurance's share of international business will gradually increase. This will reduce risk concentration in a single market and further enhance the underwriting profitability of China Realty Insurance, thereby increasing the overall ROE level of China Realty Insurance; the steady increase in the share of guaranteed products will optimize the business structure of Zhongrei Life Insurance and bring an opportunity for China Re Life Insurance to increase its ROE level. Dadi Financial Insurance's ROE is expected to rise back to historical levels as the efficiency of the use of one-time capital supplements by strategic investors increases and the comprehensive cost ratio of car insurance improves markedly. Different business segments will collaborate to drive an increase in overall ROE.
Catalyst: The company's ROE indicators have improved significantly
Risk warning: declining interest rates; risk of a major disaster in the country
