Key points of investment:
Incident: The company disclosed its 2019 annual report, achieving revenue of 50,192 billion yuan, an increase of 62.2% over the previous year, and the net profit of the mother was 1,776 million yuan, an increase of 33.9% over the previous year. The profit increase slightly exceeded our previous expectations (15.3% year on year), mainly due to: 1) 4Q19 achieved net profit of 760 million yuan in a single quarter, an increase of 141.6% over the previous year; 2) The company concentrated on confirming the total non-recurring profit and loss before tax of Tianmao Chemical, Encyclopedia Hendy, and AXA Tianping in the second half of 2019. The company's net profit after deducting non-return parents increased 19.0% year-on-year to 1,096 million yuan in 2019, and Guohua Life Insurance, the company's core subsidiary, achieved net profit of 2,216 million yuan in 2019, an increase of 7.8% year-on-year, and achieved comprehensive income of 3.404 billion yuan. Overall, it was confirmed that AXA Tianping's investment income exceeded expectations, but net profit after deducting non-net profit fell short of expectations.
Guohua Life Insurance's original premium income payment structure has been further optimized, but there is still room for further improvement. In 2019, the company's total premiums were 53.972 billion yuan, down 6.0% from the previous year. Among them, the premium payment business decreased from 49.590 billion yuan in 2018 to 35.080 billion yuan in 2019; the new single-instalment premium increased 287.3% year on year to 12.648 billion yuan; the renewal business increased 37.3% year on year to 6.244 billion yuan, an increase of 3.6 percentage points to 11.6%. The improvement in the payment structure has been due to the company's active promotion of payment services. Judging from the channel structure, the banking insurance channel still accounts for 94.3% of the original premium contribution, which is still the core channel. In line with the banking insurance transformation requirements, the company continued to actively introduce high-performing teams and talents. At the end of the period, the number of employees in the field of banking insurance reached 4,467, an increase of 48% over the end of the previous year. However, the channel capacity of corporate insurance marketers is still weak. We estimate that the handling fee rate for corporate banking insurance channels in 2019 was 7.05% (3.43% in the same period last year), and insurance marketer commissions accounted for 70.6% of all channels (95.0% in the same period last year). The agent channel commission structure has improved slightly, but there is still room for significant improvement in channel construction. The original premium income was 37.580 billion yuan in 2019, an increase of 8.8% over the previous year. Looking at the product structure, the original premium income of health insurance was 792 million yuan, an increase of 42.1% over the previous year. Keep following the company
Thanks to the company's capital increase of 9.5 billion yuan at the beginning of 2019 and the increase in operating income and insurance income, investment assets increased 36.1% from the end of the previous year to 183.777 billion yuan, driving rapid growth in embedded value. Analyzing from the perspective of asset allocation, the share of stock plus fund allocation increased 3.6 percentage points to 10.0%, the share of bond allocation was 15.9%, and the share of trust investment was reduced to 17.8%. In 2019, the company achieved a total investment income of 10.698 billion yuan, an increase of 15.0% over the previous year. The annualized net investment return was 6.6%, a decrease of 0.09 percentage points over the previous year. Thanks to capital increases in place, the company's embedded value increased 84.0% from the beginning of the year to 32.647 billion yuan, effective business value increased 76.3% year-on-year to 4,777 billion yuan. The effective business value/end-of-period EV ratio was 14.6%, compared to 15.3% in the same period last year. There is still some room for improvement.
Investment advice: The company continuously optimizes the business structure from the four aspects of “lengthening the term of debt, optimizing the payment structure, reducing the cost of debt, and increasing protection content” to enhance the business value of new orders and promote the company's long-term and steady development. However, it is still worth noting that the company still has room to improve in terms of core agent channel construction, guaranteed product layout, and stability on the investment side. We do not consider the impact of major asset restructuring on performance when forecasting the company's performance. We expect Tianmao Group's net profit from 2020 to 2022 to RMB 10.45, 15.38, and RMB 1,914 billion respectively, with year-on-year growth rates of -41.1%, 47.1%, and 24.5% respectively (the original forecasts for 2020 and 2021 were 1,811 billion yuan and 1,533 billion yuan, and the 2022 forecast was added). The current stock price corresponds to PE of 11.0X, 7.5X, and 6.0X from 2020 to 2022, respectively. We used the segmented valuation method to give a target price of 28.884 billion yuan based on the average valuation of listed insurers, and continue to maintain a neutral rating.
Risk warning: The progress of major asset restructuring matters fell short of expectations, and the equity market fluctuated greatly