Core views

On the debt side, against the backdrop of strong demand for savings insurance, the high increase in long-term insurance premiums led Taiping Life Insurance's NBV to achieve relatively rapid growth in the first half of the year. Among them, the per capita production capacity of personal agency channels improved markedly. The domestic financial insurance business was affected by the rise in the comprehensive cost ratio, and the performance of insurance services declined year-on-year. On the asset side, the company's total investment income improved markedly, driving the company's net profit to parent +20.5% year-on-year. Looking ahead to the second half of the year, it is expected that it will take some time to transition after the scheduled interest rate is adjusted. It is expected that the company will strengthen its new product reserves. It is expected that the NBV growth rate for all channels will be completed by the end of September. The NBV growth rate in the second half of the year is expected to slow down compared to the first half of the year, but the impressive performance in the first half of the year lays the foundation for NBV to achieve rapid growth throughout the year. Currently, the company's valuation is low, and the margin of safety is sufficient.

occurrences

China Taiping discloses results for the first half of 2023

The company achieved net profit of HK$5.250 billion in the first half of 2023, +20.5% year-on-year. The value of new business in the first half of the year was HK$3,955 billion, +19.2% year on year. The value ratio of new business decreased by 1.3 percentage points to 12.2% year on year.

Brief review

Overall performance: Net profit to parent was +20.5%, and improved investment income driven the company's net profit by +20.5% in the first half of the year to HK$5.220 billion, mainly due to return on investment +105.9% yoy to HK$12.194 billion.

Life insurance: In the context of strong demand for savings insurance, the high increase in premiums for new long-term insurance policies led to a relatively rapid increase in NBV in the first half of the year

In Hong Kong dollars, Taiping Life's NBV for the first half of the year was +19.2% year-on-year to HK$3,955 billion; in RMB, NBV for the first half of the year was +28.5% year-on-year to HK$3.646 billion. The year-on-year increase in NBV was mainly due to the increase in premiums for new long-term insurance policies. In the first half of the company's life insurance business, individual long-term insurance premiums reached HK$28.335 billion in the first half of the year. Mid-term premiums accounted for -2.5 pct to 96.6% year-on-year. In the first half of the year, against the backdrop of large fluctuations in the capital market, strong demand for steady investment, and price and interest rate adjustments driving the accelerated release of residents' demand for savings insurance, sales of savings-type products represented by incremental whole life insurance were relatively good.

The company's original premiums for traditional life insurance were +41.7% year-on-year to 44.51 billion yuan in the first half of the year, which is expected to be the main driving factor for the increase in new long-term insurance orders in the first half of the year. Taiping Life Insurance's NBVM in the first half of the year was -1.3 pct to 12.2% year-on-year, mainly due to the increase in the share of new long-term insurance premiums in the banking insurance channel, where NBVM was lower, and the NBVM level of the banking insurance channel declined year-on-year.

The overall net profit of the life insurance business for the first half of the year was +14.8% year-on-year to HK$7.477 billion, mainly due to a significant improvement in net investment performance compared to the same period last year. On the debt side, insurance service performance in the life insurance business in the first half of the year was -26.0% to HK$7.637 billion, mainly due to insurance service revenue -5.9% to HK$31.002 billion and insurance service expenses +5.6% to HK$23.288 billion. Among them, the year-on-year decline in insurance service revenue was mainly affected by changes in the RMB exchange rate. With the same currency exchange rate unchanged, insurance service revenue was +0.7% year-on-year.

In the first half of the year, new business contributed +2.2% to HK$10.73 billion from CSM and +9.4% year on year to $9.51 billion in RMB terms. As of the end of the first half of the year, the CSM balance was HK$216.70 billion, compared to -1.8% at the end of the previous year, and +1.4% in RMB terms.

Individual agents: Significant improvements in per capita production capacity drive rapid NBV growth Taiping Life's personal agency channel NBV in the first half of the year was +22.4% year-on-year to HK$3,279 billion, which is expected to be driven by an increase in per capita production capacity. According to our estimates, the NBV per capita of individual agents was +35.0% year-on-year to HK$9219 in the first half of the year, which is expected to be driven by an increase in the per capita long-term insurance premium and an improvement in NBVM.

New long-term insurance orders for personal agents in the first half of the year were +23.5% to HK$13.506 billion, and new long-term insurance orders per capita were +36.1% year-on-year to HK$37975. NBVM for personal agents in the first half of the year was +1.3 pct to 18.6% year over year. Specifically, production capacity and income of supervisors continue to be optimized. The average monthly production capacity per capita at the supervisory level is +34.7%, and the average monthly income per capita income at the supervisory level is +28.1%. The quality of new hires has increased significantly compared to the same period last year. The average monthly production capacity of new hires in the first half of the year was 72.9%.

In terms of manpower scale, by the end of the first half of the year, the number of individual agents was 320,000, -19.8% year-on-year, and -18.1% from the end of the previous year.

Banking insurance channels: New long-term insurance premiums increased but NBVM declined. NBV was basically the same as Taiping Life Insurance Channel's NBV in the first half of the year, +0.4% year-on-year to HK$464 million, which was basically the same. The bank insurance channel's long-term insurance premiums for the first half of the year were +71.1% year-on-year to HK$13.482 billion, but NBVM was -2.4pct to 3.6% year over year. In terms of business quality, the banking insurance channel accounted for -0.3 pct to 99.5% of new long-term insurance orders in the first half of the year.

Domestic financial insurance: The comprehensive cost ratio increased, and the overall net profit of the domestic financial insurance business in the first half of the year decreased by -67.9% year-on-year to HK$185 million. This was mainly due to the comprehensive cost ratio of +2.4pct to 97.6% year-on-year driving insurance service performance of -48.6% to HK$392 million. Taiping Financial Insurance's original premiums for the first half of the year were +3.1% year-on-year to HK$18.433 billion, of which auto insurance and non-auto insurance were -3.7% and +3.1%, respectively. In RMB terms, Taiping Financial Insurance's insurance service revenue for the first half of the year was +7.7%, of which auto insurance and non-car insurance were +4.1% and +14.8%, respectively.

In terms of vehicle insurance, premiums for new energy vehicles were +109.4% to 1.02 billion yuan, and the comprehensive cost ratio was +2.4pct to 97.6% year on year, maintaining underwriting profits.

Asset side: It is expected that fair value changes and profit and loss recovery will lead to a significant improvement in the company's total investment income in the first half of the year by +105.9% (up HK$12.194 billion) to HK$23.704 billion, mainly due to realized and unrealized capital gains (including securities investment spread income, fair value change profit and loss, and impairment losses on investment assets) of HK$1,591 million, a significant improvement over losses of HK$11.316 billion in the same period last year. The company's net unrealized revenue for the first half of the year was HK$3,555 million, a significant improvement from the loss of HK$8.505 billion in the same period last year. It was mainly driven by debt investment classified as FVTPL. The total annualized return on investment for the first half of the year was +1.91 pct to 3.89% year on year, and the annualized comprehensive return on investment was +4.00 pct to 5.92% year on year.

Net investment income for the first half of the year was -3.1% (year-on-year decrease of HK$713 million) to HK$22.113 billion, mainly due to dividend income of -32.3% (year-on-year decrease of HK$1,355 million) to HK$2,835 million. The annualized return on investment for the first half of the year was -0.31 pct to 3.63% year-on-year.

The company invested about HK$27.1 billion in real estate debt-type financial products, accounting for only 1.9% of total assets, compared to 0.1 pct at the end of the previous year. Real estate debt financial products maintain high credit ratings, and the main projects are in first-tier cities, provincial capitals, or economically developed second-tier cities.

Investment suggestion: The impressive growth rate of NBV in the first half of the year laid the foundation for rapid growth throughout the year. The margin of safety was sufficient. Looking at the “buy” rating on the debt side, against the backdrop of strong demand for savings insurance, the high increase in long-term insurance premiums led Taiping Life Insurance to achieve relatively rapid growth in NBV in the first half of the year. Among them, the per capita production capacity of personal agency channels improved markedly. The domestic financial insurance business was affected by the rise in the comprehensive cost ratio, and the performance of insurance services declined year-on-year. On the asset side, the company's total investment income improved markedly, driving the company's net profit to parent +20.5% year-on-year. Looking ahead to the second half of the year, it is expected that it will take some time to transition after the scheduled interest rate is adjusted. It is expected that the company will strengthen its new product reserves. It is expected that the NBV growth rate for all channels will be completed by the end of September. The NBV growth rate in the second half of the year is expected to slow down compared to the first half of the year, but the impressive performance in the first half of the year lays the foundation for NBV to achieve rapid growth throughout the year. We expect the company's NBV growth rate in 2023/2024/2025 to be 11.8%/8.3%/14.5%, respectively. We will give the company a target price of 12.1 yuan for the next 12 months, corresponding to 0.2 times the PEV in 2023, and give it a “buy” rating. As of the close of trading on August 28, 2023, the company's PEV positions in the past 1, 3, and 5 years were 33%, 11%, and 7%, respectively, with a sufficient margin of safety.