1H23 New business value meets expectations
The company announced 1H23 results: the value of the new business was +37.1% year-on-year, in line with our previous expectations. The comprehensive cost ratio for financial insurance under the new and old standards was -0.7/-0.3ppt to 98.2%/98.5% year-on-year, respectively, which was better than our expectations, mainly due to the improvement in the quality of the company's non-auto insurance business that was better than our expectations. The Group's net profit to parent was +9.0% year-on-year, which is basically in line with our expectations.
Development trends
The value of the new business was +37% year-on-year, leading the industry, and the banking insurance channel had a solid advantage. Thanks to the industry's savings insurance sales and value strategy, 1H23's new business value was +37% year-on-year, of which the value of the new business of individual insurance channels/banking insurance channels was +17%/49%. In terms of individual insurance channels, the 1H23 value ratio (NBV/APE, calculated value) was -12.6ppt to 29.7% year on year, or mainly affected by the increase in the share of savings insurance in new businesses, etc., and the average monthly activity rate remained flat at 18.9%. As far as different levels were concerned, the per capita production capacity of 1H23 newcomers increased to +95%, the elite team increased to 1,706 people, and the per capita production capacity reached 57,000 yuan. The quality and activity of the team improved. In terms of banking insurance channels, the “cut transaction” value strategy continues to be implemented. 1H23 new single payments/term premiums were -54%/+51% year on year, resulting in -16% of new order premiums, but the channel business structure was optimized. In the first half of the year, new single instalment premiums accounted for +29ppt to 65.1% of new order premiums. Channel value capability is still outstanding. The banking insurance value ratio (NBV/APE, calculated value) was +1.3ppt to 15% year-on-year, and the value ratio level was ahead of the industry.
The overall cost ratio of the non-vehicle business has improved markedly under a high-quality development strategy. The comprehensive cost ratio of 1H23 Sunshine Cai's new and old standard calibers was -0.7/-0.3ppt to 98.2%/98.5%, respectively. Among them, the comprehensive cost ratio for auto insurance/non-auto insurance (old standard caliber) was +1.2pp/-3.0ppt to 98.3%/98.7% year-on-year. The comprehensive cost ratio of auto insurance may be under pressure or mainly affected by the low base of the epidemic in the same period last year; underwriting profits in the non-car business have improved markedly, mainly due to the strengthening of non-vehicle pricing capabilities and quality assurance control of the insurance business under a high-quality development strategy.
The net profit of the new standard caliber was +9% year-on-year, mainly driven by an increase in insurance service performance. Under the decline in interest rates, the new standard net return on investment is -0.8ppt to 3.4%, in line with industry trends. The capital market fluctuated, and the total return on investment in the second half of the year was 0.6ppt to 3.5% year-on-year. Thanks to the allocation strategy focusing on high-dividend value stocks and high-quality growth stocks, the company's 1H23 comprehensive investment yield was +2.2ppt to 4.9% year-on-year.
Shareholders' equity in the first half of the year was +12.5% from the beginning of the year to 65.3 billion yuan.
The group's inclusive value for the first half of the year was +3.7% compared to the beginning of the year; the inclusive value of life insurance was +6.9% month-on-month, with new business contributing +3.5% to the growth rate and the difference in return on investment contributing -0.3%.
Profit forecasting and valuation
As capital market performance fell short of our previous expectations, we lowered 2023e/2024e EPS by 23%/8% to 0.5/0.6 yuan per share and 2023e/2024e EVPS by 7%/11% to 9.6/10.4 per share. In response, we lowered our target price by 10.6% to HK$5.8 to maintain our outperforming industry rating. The current stock price corresponds to 2023e/2024e 0.35x/0.31x P/EV, and the target price corresponds to 2023e/2024e 0.51x/0.46x P/EV. There is 46.5% upside compared to the current stock price.
risks
The increase in premiums for new orders fell short of expectations; long-term interest rates fell sharply; capital markets fluctuated greatly; and policy and regulatory uncertainty.