Introduction to this report:
The company's 23H1 net profit was +20.5%, mainly due to improved investment returns; NBV growth was in line with expectations, manpower was reduced and quality was reduced; financial insurance was exchanged for volume, and the comprehensive underwriting cost ratio was 97.6%; and investment income improved markedly.
Summary:
Maintaining the “increase in holdings” rating, the target price was lowered to HK$11.42 per share, corresponding to P/EV of 0.19 times in 2023: the company's 23H1 net profit was +20.5% compared to the same period, mainly brought about by a significant improvement in investment income; the included value of life insurance was +5.0% (HKD caliber)/+8.4% (RMB caliber) compared to the end of the previous year, which is expected to be mainly due to increased contribution to new business and expected return on included value. Taking into account short-term sales pressure after switching between new and existing products, the 2023-2025 EPS was adjusted to HK$1.49 (1.68, -11.4%)/1.91 (1.93, -1.0%) /2.24 (2.17, +3.2%). Net profit linked to shareholder dividends lowered the target price to HK$11.42 per share.
NBV was in line with expectations, and personnel strategy adjustments showed a reduction in volume and quality improvement: in the first half of '23, NBV was +19.2% (HKD caliber)/+28.5% (RMB caliber), mainly for the company to grasp the strong insurance and savings needs of customers. The merger of multiple channels led to rapid growth in new orders, +33.0%, with individual insurance channels +13.8% and banking insurance channels +70.5%. The product's new business value ratio declined further by 1.3pt to 12.2%, with the individual insurance value ratio +1.3pt to 18.6%; the banking insurance value ratio -2.4pt to 3.6%. The manpower strategy has been adjusted. Following a contrarian increase in manpower in '22, the size of manpower declined markedly in '23. As of the end of June '23, the number of individual insurance agents was -19.8% year-on-year to 32,000. The optimization of the channel strategy boosted the increase in production capacity. In the first half of the year, the monthly production capacity per capita of supervisors was +34.7%, and the monthly production capacity of additional manpower was +72.9%.
Financial insurance was exchanged for volume, and investment income improved markedly: 1) In the first half of '23, total domestic financial insurance premium income was +3.1%, of which car insurance premiums were -3.7%. Growth was slower than what the industry expected to actively slow down business expansion to maintain profit levels. The comprehensive cost rate for financial insurance underwriting was +2.4pt to 97.6%.
2) The Group's high-scoring Hong Kong stocks held in the first half of '23 significantly outperformed the Hang Seng Index, driving a marked improvement in investment returns. The total annualized return on investment was +1.91pt to 3.89% yoy; the annualized net return on investment was -0.31pt to 3.63% yoy; and the annualized comprehensive return on investment was 5.92%.
The catalyst: a recovery in equity markets.
Risk warning: agent reform falls short of expectations; long-term interest rates decline; equity market fluctuates.