Matters:
Zhongan Online published its 2023 annual report. During the reporting period, the company achieved premium income of 145 billion yuan, +37.5% year-on-year; the comprehensive cost ratio was -0.7 pct to 95.8% year-on-year. In the first half of 2023, the company achieved net profit of 221 million yuan, +134.7% year-on-year; net assets at the end of the reporting period were 16.096 billion yuan, +2.1% compared to the end of the previous year; total/net return on investment was 4.0%/2.2%, +3.4 pct/+0.0pct year on year.
Commentary:
The insurance business sector has achieved an excellent balance of volume and price. 2023H1 achieved premium income of 145 billion yuan, +37.5% year on year.
The comprehensive cost ratio improved by 0.7 pct to 95.8% compared to the same period last year; among them, the payout rate was -0.6 pct to 57.1% year on year, mainly benefiting from the optimization of the payout rate brought about by the optimization of the product structure; the cost rate was -0.1 pct to 38.7% year-on-year. Underwritten profit was 536 million yuan, +47.6% year on year.
Health Ecology: The company's product matrix has been revitalized. The 2023H1 Health Ecology achieved premium revenue of 5.018 billion yuan, +15.9% year-on-year; its share of total premiums was 6.5 pct to 34.7% compared to last year. Among them, the popular product “Exclusive e-Student” series achieved total premium income of 3.469 billion yuan, +51.5% over the same period, and the zero deductible “Exclusive e-Student” growth rate reached 148%. At the same time, the company's critical illness insurance/outpatient emergency insurance achieved total premium income of 777/100 million yuan respectively, +267.6%/+52.8% year-on-year, respectively. The company promotes health and inclusiveness, lowers the threshold for applying for insurance, introduces “People's Insurance” with no occupational restrictions, and expands the range of people covered. 2023H1, the company's health ecosystem has about 10.26 million individual insurance payers, +14.5% over the same period last year. During the reporting period, the comprehensive cost rate of health ecology declined significantly, from -3.8 pct to 92.5% year on year. The main benefit was the optimization of the payout rate, which was -17.1 pct to 38.0% year on year. The main reason for the decline in payout rates is the increase in the share of new insurance and the deepening application of AIGC technology in intelligent underwriting engines. The company's expense ratio was +13.4 pct to 54.5% year on year because the company increased marketing and customer acquisition during the reporting period. 2023H1, self-operated channel premiums +163.1% year-on-year; at the same time, the company continued to improve the renewal rate level through private traffic. The self-operated channel renewal rate was about 87.4% during the reporting period.
Digital lifestyle ecosystem: The company's products serve customers in a new scenario. The 2023H1 digital lifestyle ecosystem achieved premium revenue of 5.836 billion yuan, +52.8% year-on-year; accounting for +4.0pct to 40.4% of total premiums. Among them, the company's e-commerce business achieved premium revenue of 3,098 billion yuan, +35.8% year on year, accounting for -7 pct to 53.0% year on year; this sector mainly benefited from the e-commerce economy's continued release of dividends during the reporting period. Air travel business premiums were 1,442 billion yuan, +118.1% year on year, accounting for +8 pct to 23.0% year on year; this sector mainly benefited from the full release of consumer travel demand during the reporting period. Innovative business premiums were 1,296 million yuan, +47.9% year on year, accounting for -1pct to 22.0% year on year. Among them, the company continues to be deeply involved in the pet sector, embeds services into multiple scenarios in pet ecology, and introduces various innovative insurance types. The annual premium for pet insurance is 200 million yuan, +100% year-on-year. During the reporting period, the comprehensive cost rate of the digital lifestyle ecosystem stabilized at 99.8%. The payout rate was +3.6 pct to 68.4% year on year; the fee rate was -3.6 pct to 31.4% year on year. The share of e-commerce returns insurance, which mainly benefits from new channels, and innovative businesses with superior profits continues to increase.
Consumer finance ecosystem: The 2023H1 consumer finance ecosystem achieved premium income of 2,787 billion yuan, +52.0% year-on-year; the share of total premiums was +1.8pct to 19.3% year-on-year. Zhongan uses cooperation in multiple scenarios and channels to reach potential borrowers and strengthen individual credit assessments; through AI and data analysis, it enhances financial institutions' reach to users. At the end of the reporting period, the company had an underwritten loan balance of 26.477 billion yuan. During the reporting period, the overall cost rate of the consumer finance ecosystem increased slightly, mainly due to the comprehensive impact of the payout rate of +11.6pct to 60.8% compared to the same period in 2022, and the cost rate of -11.3pct to 29.9% year-on-year.
Automobile ecology: Seizing the recovery of the passenger car market, the 2023H1 automobile ecosystem achieved premiums of 822 million yuan, +54.3% year-on-year; accounting for +0.6pct to 5.7% of total premiums. At the same time, the company has seized new energy insurance opportunities and policy dividends, continuously improved the pricing risk control model, and provided products to more than 20 brand new energy vehicle owners. The total premium increased by more than 228.7% in the first half of 2023. During the reporting period, the comprehensive cost rate of the automobile ecosystem was optimized, -0.6 pct to 97.3% year on year. The main benefit cost rate declined. Affected by the resolution of the epidemic and the resumption of travel, the company's payout rate was +2.1pct to 59.1% year on year, and the cost rate was -2.8pct to 38.2% year on year, further improving operating profit.
The technology export business has returned to normal and is growing at a high rate. At 2023H1, Zhongan achieved technology output revenue of 267 million yuan, +22.0% over the same period last year. The annual revenue of the domestic technology export business was 150 million yuan, +35.5% over the same period last year. The company's self-developed integrated platform based on the new insurance contract guidelines was exported to the outside world in 2023, and the formal contract with the insurance company was completed. The company provides “Business Growth Series, Business Production Series, and New Digital Infrastructure Series” products. During the reporting period, the company signed 8 new contracts for its 3 major product lines from banks and securities. At the same time, ZA Tech continues to explore overseas markets, with ZA Tech's international technology output revenue of 118 million yuan, +8.3% over the same period last year. ZA Tech signed a new contract amount of more than 230 million yuan in the first half of 2023, with a growth rate of over 100%. It is expected to continue to provide stable revenue for the technology business sector in the future.
Focus on quality and improve the efficiency of banking operations. 2023H1, ZA Bank achieved net revenue of HK$152 million, +13.0% year-on-year, of which non-interest income accounted for 25.8%. ZA Bank focuses on business quality and improving operating efficiency. The net loss ratio narrowed 60 pct to 131.8% from 191.6% in the same period in 2022. ZA Bank's net interest margin increased to 1.87% as loan products were diversified and deposit-to-loan ratios increased. Currently, ZA Bank has become one of the most versatile virtual banks in the Hong Kong market. The number of retail customers is close to 700,000, and the average number of monthly card purchases by customers is nearly 15 times. At the same time, the company launched an express online corporate account opening service on April 1 to provide a fast account opening experience for local micro, small and medium-sized enterprise customers.
Actively promote global brand building and promote rapid premium growth. 2023H1, the total premiums of the company's self-operated channels were 4.425 billion yuan, +90.6% year-on-year; the proportion of total premiums was +8.6pct to 30.6% year-on-year. During the reporting period, the company continued to open up all public and private domain links to deepen customer brand awareness. The company currently has over 25 million omnichannel followers, and the average number of monthly active users of the Zhongan brand app was +42.0% during the reporting period. During the reporting period, the number of paid users through the company's self-operated channels was 6.18 million, or +24.8%; the per capita premium for self-operated channel users was 712 yuan, +52.9%, and the proportion of multi-policy users through self-operated channels reached 54%.
Investment returns have improved significantly. By the end of the reporting period, the total investment assets of insurance funds in Zhongan were 36.231 billion yuan, of which fixed income investments accounted for +3.7 pct to 73.3% year on year (of which bonds and bond funds accounted for +3.5 pct to 56.6% year on year), stocks and equity funds accounted for -2.4 pct to 8.4% year on year, and unlisted companies accounted for +0.7 pct to 16.1% year on year. The credit status of the company's fixed income assets was good. By the end of the reporting period, 99.4% of external credit ratings had reached AA (domestic) or higher, and the share of those receiving an external credit rating of AAA (domestic) was about 78.2%. The company's investment income improved significantly during the reporting period. During the reporting period, the company's total investment income increased from RMB 110 million in 2022H1 to RMB 723 million; of this, net investment income was RMB 146 million, and net benefit from changes in fair value was RMB 573 million. The total/net return on investment was 4.0%/2.2%, +3.4 pct/+0.0 pct.
Investment suggestions: In the first half of 2023, Zhongan Insurance's business was excellent in terms of quantity and quality, with clear key strategies in each ecosystem and a rich product matrix. The technology business and banking business also maintained good growth. The construction of own platforms has been effective, and the contribution of self-operated channels has been highlighted. The asset side turned losses into profits, achieved significant growth, and contributed positive growth to net profit.
Looking ahead to the whole year, Zhongan Online is expected to continue promoting high-quality development and innovative exploration in various ecosystems, empowering technology and creating a second growth curve. Considering that the performance of various ecosystems exceeded expectations in '23, it is expected to be “insurance+technology”
The twin engines continue to work. We raised our 2023-2025 EPS forecast to 0.58/1.00/1.57 yuan (previous value 0.50/0.87/1.48 yuan), and 2023-2025 BPS to 12.4/14.7/17.6 yuan (previous value 12.33/14.46/ 17.33 yuan). Maintain the company's 2023 target PB of 2-2.5 times, and the corresponding target price range of HK$26.7-33.4 (HKD to RMB closing price 0.93 on August 28), and maintain the “recommended” rating.
Risk warning: Increased downward pressure on the economy, fluctuations in equity markets, and changes in regulatory policies.