EPS increased by 13.3% compared with the same period last year and NBV grew by 28.5%.
China Taiping's new 1H23 standard EPS is HKD1.37 yuan, which is better than Bloomberg's consensus forecast (1.18 yuan), an increase of 13.3% compared with the same period last year. 1H23 New Business value (NBV) RMB calibre increased by 28.5 per cent year-on-year, a strong growth; taking into account exchange rate changes, the Hong Kong dollar caliber NBV increased by 19.2 per cent.
The comprehensive cost rate of domestic property insurance was (COR) 97.6%, an increase of 2.4 pct over the same period last year; reinsurance business COR105.8%. The annualized net investment / total investment / comprehensive investment rate of return on 1H23 is 3.63, 3.89, 5.92%, respectively. We expect 2023 EPS 2024 to be HKD2.30/2.76/3.06 in 2025 (previous value: HKD2.16/2.49/2.80). We maintain our target price HKD12 and "buy" ratings based on the DCF valuation method.
Insurance service performance contributes major profits
1H23's life insurance CSM reached HKD2167 billion, down 5 per cent from the end of 2022 and accounting for 20.6 per cent of life insurance contract reserves. Life insurance CSM released HKD91 billion in 1H23, with an annualized release rate of 8.0%, accounting for 116% of the group's pre-tax profit, which is the most important source of profit. At the group level, the pre-tax profit in the first half of the year was HKD78.4 billion, of which the performance of life, property and reinsurance services was HKD81 billion, accounting for 104% of the pre-tax profit; the investment performance was only HKD16 billion, accounting for 21% of the pre-tax profit; and other expenses accounted for-25%. Under the new standard, the asset allocation structure of the company has changed. About 60% of the fixed assets are measured in FVOCI, and about 90% of the equity assets are measured in FVTPL. Although the comprehensive investment income is better, the life insurance reserve has a large increase due to the reduction of interest rates, resulting in a comprehensive income loss of HKD0.6 billion to shareholders.
Life insurance NBV increases sharply
Excluding exchange rate changes, NBV increased by 28.5% in the first half of the year compared with the same period last year (HK $: + 19.2%). We believe that the switch in pricing interest rates for life insurance products in July may promote consumers to buy in advance, pushing up new order sales in the second quarter. 1H23 premiums rose 33 per cent in the first year compared with the same period last year, and the increase in savings business led to a decline in NBV profit margins to 12.2 per cent in the same period. The size of Taiping Life individual insurance channel agents fell 18.1 per cent to 320000 in 1H23. We estimate that agent 1H23 NBV capacity rose 35 per cent year-on-year (excluding exchange rate movements: + 46 per cent). The switch in pricing rates may lead to weakness in new order sales in the short term, but we do not think it will change the trend of long-term recovery in life insurance sales. We expect NBV to grow by 16.8% in 2024 compared with the same period last year.
Domestic property insurance and reinsurance COR pressure
The comprehensive cost rate of domestic property insurance (COR) rose 2.4pct to 97.6% compared with the same period last year, mainly due to the increase in auto insurance claims to normal since the second quarter. The performance of reinsurance underwriting continues to deteriorate, rising 4.4pct to 105.8% year-on-year, and frequent natural disasters in the second half of the year may bring some pressure. The company's share price currently corresponds to 0.12x 2023 PEV, which we find attractive.
Risk hint: NBV growth slows, property insurance COR rises sharply, investment loses heavily.