“Insurance+Technology” helps companies turn losses into profits. As the first Internet insurance technology company in China, in the first half of 2023, Zhongan achieved total premium income of 14.46 billion yuan, a year-on-year increase of 37.5%; net profit of 221 million yuan; a comprehensive cost ratio of 95.8%, an improvement of 0.7 points over last year; and a comprehensive expense ratio of 38.7, an optimization of 0.1 points over the previous year. With the recovery of the domestic economy and the deepening digital transformation of global finance, Zhongan led the development of insurance technology. In the first half of the year, it achieved technology export revenue of 267 million yuan, an increase of 22% over the previous year. The annualized net return on investment and return on total investment were 2.4% and 4.4%, respectively, up 0.1 points and 2.6 points from the previous year.
The comprehensive ecological layout captures the multi-dimensional development space. Zhongan is focusing on building an ecological layout integrating health, digital life, consumer finance, and automobiles. In the first half of the year, all ecosystems achieved high premium growth rates, corresponding to total premium income of 5.018 billion yuan, 5.836 billion yuan, 2,787 billion yuan, and 822 million yuan, up 15.9%, 52.8%, 52.0%, and 54.3% over the previous year. 1) In the health sector, Zhongan actively grasped the opportunities of Health China and continuously upgraded product design. Among them, it introduced the “People's Insurance” One Million Medical Insurance with a low underwriting threshold to capture the insurance coverage needs of non-standard people, achieving a premium growth rate of more than 10 times. COR was optimized by 3.8 points compared to last year, and the overall payout rate was only 38%. 2) In terms of digital life, with the gradual recovery of the economic situation in the first half of the year, e-commerce and travel dividends were released centrally. The company used its technology and data advantages to provide customized insurance services, achieving corresponding premium growth rates of 35.8% and 118.1%. At the same time, Zhongan Pet Insurance ranked at the top of the industry, achieving premium revenue of 200 million yuan in the first half of the year, an increase of nearly 100% over the previous year. 3) The company uses the advantages of its Internet platform to provide credit technology services to licensed financial institutions. The comprehensive fee rate and COR for the first half of the year were 29.9% and 90.7%.
4) The automobile ecosystem mainly achieved comprehensive online and offline vehicle insurance coverage through a co-insurance model with Ping An Insurance. Among them, due to the increase in demand for new energy vehicles, NEV premiums increased 228.7% year-on-year in the first half of the year.
Implement technological empowerment and increase technological output. The company further increased its construction in artificial intelligence, blockchain, cloud computing and big data in the first half of the year. As of June 30, 2023, the company's R&D investment reached 699 million yuan, an increase of 6.5% over the previous year, accounting for 4.8% of total premiums. In the first half of the year, the company signed 35 new insurance industry customers to provide technology services, and achieved technology export revenue of 267 million yuan, an increase of 22% over the previous year.
Promote mixed business operations, and monetize virtual banking services based on consumption scenarios. As the earliest virtual bank in Hong Kong, the scale effect of the company's ZA Bank is gradually showing. As products and functions continue to improve, the number of retail customers has exceeded 700,000, with an average monthly card consumption of 15 times, driving net revenue of HK$152 million in the first half of the year, an increase of 13% over the previous year, and the net interest spread further increased to 1.87% during the interest rate hike cycle.
Investment suggestions: As a unique insurance technology company in China, Zhongan achieved a recovery in performance in the first half of the year, compounded by the gradual recovery of the economic situation, and injected momentum into its four major ecosystems. We expect the company's EPS to be 0.32/0.60/0.71 yuan from 2023 to 2025, and P/E to be 71.68/38.92/32.75 times, maintaining the “buy” rating.
Risk warning: The growth rate of the company's four major ecosystems falls short of expectations; scientific and technological research and development results fall short of expectations; continued fluctuations in the equity market; the decline in interest rate centers, etc.