1H23 The value of the new business is basically in line with our expectations
China Taiping announced 1H23 results: the new business value (RMB caliber) was +28.5% (HKD caliber +19.2%), which was basically in line with our expectations and was lower than market expectations by 6%; the comprehensive cost ratio for domestic financial insurance business was +2.4ppt to 97.6% year on year; the Group's consolidated net profit (HKD caliber) was +20.5%, better than our and market expectations, mainly due to the company's investment performance in the first half of the year being better than expected.
Development trends
The value of the new business is basically in line with expectations, and the quality of the business remains leading. Under the high prosperity and value strategy of savings insurance, the value of the company's 1H23 RMB new business was +28.5% year-on-year, which is basically in line with our expectations. By channel, the agent/banking insurance channel's new business value (RMB caliber) was +32.0%/8.2%, and the new business value ratio (disclosed value) was +1.2/-2.5ppt to 18.6%/3.6%, respectively. The number of 1H23 agents dropped by 18.1% to 320,000 from the beginning of the year, including +57.1% per million people to 2,673, and the number of promoted business managers +94.7% to 2,666; the average monthly production capacity of new hires in that year was +72.9%, and the average monthly production capacity per capita of supervisors was +34.7%, and the production capacity of agents at all levels improved markedly. The 13-month/25-month continuation rate for managers in the first half of the year was 96.1%/91.6%, while banking insurance was 98.1%/96.8%, respectively, which continues to be at an excellent level in the industry.
Under the new accounting standard, the comprehensive cost rate for domestic financial insurance was +2.4ppt to 97.6% year on year. We expect a low payout base, mainly due to the pandemic last year. The overall profit situation of Taipingcai is better than we expected.
Strong investment performance and retroactive IFRS9 adjustments led to higher net profit than expected. The company's 1H23 new standard net, total, and comprehensive investment returns were 3.63%/3.89%/5.92% respectively. Thanks to the company's high score, Hong Kong stocks outperformed the Hang Seng Index (including interest) 11.42ppt, and the group's overall equity outperformed Shanghai and Shenzhen 3002.19ppt. In addition, the company used a classification overlap method for financial assets to trace data for the same period last year. The total return on investment in 1H22 fell 1.4ppt from 3.35% of the old caliber to 1.98% of the new caliber. After restatement, the comparable investment performance base was lower, driving 1H23's net profit +20.5% to 5.22 billion Hong Kong dollars; in the first half of the year, the company's shareholders' equity (RMB caliber) was +0.9% to 75.63 billion yuan.
Life insurance EV (RMB caliber) +8.4% month-on-month and contract service marginal +1.4% month-on-month. We expect to be mainly driven by better new business performance, and the contribution of investment bias to EVs has also improved markedly.
Optimistic about the company's valuation repair opportunities. Since 2021, Taiping NBV's growth rate has continued to lead the industry, and many indicators have remained steady under industry headwinds. As a result, the company currently only traded 0.12x 23e P/EV due to the previous industry downturn and historical business development fluctuations. We believe the company is greatly underestimated. As the company and the industry's new business improvement trends become more and more clear, we are optimistic about its valuation repair opportunities.
Profit forecasting and valuation
We increased 2023e/2024eEPS by 22.6%/9.6% to HK$2.5/3.0 per share due to the new guidelines switching away from reserves and absorbing investment losses. The current stock price corresponds to 2023e/2024e0.12x/0.11x P/EV. Considering the effects of Hong Kong stock liquidity, etc., we maintain a target price of HK$13.80, corresponding to 2023e/2024e 0.21x/0.20x P/EV, which has 83% upside compared to the current stock price. Maintain the company's outperforming industry rating.
risks
The increase in premiums for new orders fell short of expectations; long-term interest rates fell sharply; and the capital market fluctuated greatly.