Overall performance in 2019 is in line with our expectations
China re announces 2019 results. The net profit of homing increased by 62% compared with the same period last year, which is in line with our expectations. The comprehensive cost rates of China Reproduction Insurance and Land Insurance are 101.3% and 99.9%, respectively. The embedded value of the group increased by 14% compared with the beginning of the year.
Trend of development
Homing net profit increased by 62% compared with the same period last year, in line with our expectations, mainly because the rise in the stock market led to an improvement in the rate of return on investment, the acquisition of bridge clubs and one-off tax rebates.
China re-life insurance business increased by 37% over the same period last year, and the comprehensive cost rate of short-term insurance business continued to improve. With the gradual landing of the revision of the domestic serious disease insurance definition standard, we expect the company to usher in more opportunities in the serious disease insurance market.
The comprehensive cost rate of China reproperty insurance increased by 1.7 percentage points to 101.3% over the same period last year. The comprehensive cost rate of domestic business increased by 2.4 percentage points over the same period last year, mainly affected by African classical swine fever, while the comprehensive cost rate of overseas business decreased by 1.0 percentage points compared with the same period last year. The insurance premiums of overseas production and recycling business increased significantly by 47% compared with the same period last year, mainly benefiting from the acquisition of Bridge Society. Looking forward, we expect that the comprehensive cost rate of domestic operations will improve in 2020 with the mitigation of classical swine fever in Africa.
The comprehensive cost rate of Dadi Insurance fell 0.4 percentage points to 99.9% compared with the same period last year, mainly due to the improvement of product structure (the proportion of car insurance decreased). We expect premium growth to come under pressure in 2020, but the comprehensive cost rate is expected to improve, mainly due to tighter regulation of car insurance rates.
Profit forecast and valuation
As recent fluctuations in global stock markets may affect corporate revenues, we have lowered our earnings forecast for 2020 by 5 per cent, raised earnings forecasts for 2021 by 1 per cent, and raised value forecasts for 2020-2021 by 4 per cent and 3 per cent. At present, China's reinsurance transactions include value multiples at 0.4 times in 2020. Taking into account the decline in interest yields and stock market volatility, we maintain a neutral rating, but lower the target price by 14.3% to HK $1.20, corresponding to 0.5 times the multiple of value in 2020, which has 33% upside compared to the current share price.
Risk
An unexpected disaster; the stock market fell sharply.
