Incident: The company disclosed its 2023 annual report, with total premiums of 145 billion yuan, +38% year on year in the first half of the year; net profit due to gross profit of 220 million yuan, an increase of 860 million yuan over the same period last year (-640 million yuan), mainly due to increased investment income and increased underwriting profit. Among them, the comprehensive cost ratio increased by 0.7 pct to 95.8% year on year, achieving underwritten profit of 540 million yuan; earnings per share of 0.15 yuan (same period last year: -0.43 yuan).
The comprehensive cost ratio has improved markedly, and self-operated channels have grown significantly. In the first half of 2023, the company achieved a year-on-year increase of +38% to 145 billion yuan in the four major ecological premiums, of which health/digital lifestyle/consumer finance/auto ecosystem premiums reached 34.7%/40.4%/19.3%/5.7%, respectively; the comprehensive cost ratio was -0.7 pct to 95.8%, driving a year-on-year increase in underwriting profits of 47.6% to 540 million yuan, mainly due to further optimization of payout rates. Among them, the improvement in health ecological payout rates was particularly obvious. In addition, self-operated channels achieved premiums of +91% to 4.4 billion yuan over the same period, accounting for +8.6pct to 31% year over year. If you look at it by ecology:
1) Healthy Ecology: Payout rates have improved markedly, and flagship products have remained high. In the first half of the year, Health Ecology achieved a year-on-year premium of +16% to 5 billion yuan, accounting for 34.7%, of which the Premium e-Life premium was +51.5%.
In addition, the company launched multiple critical illness insurance payments this year. In the first half of the year, the company achieved a total of 780 million yuan in critical illness insurance premiums, an increase of 268% over the previous year. The overall payout rate for Health Ecology was 38.0%, down 17.1 pct from the previous year. It mainly benefited from an increase in the proportion of new insurance policies and an improved level of risk control.
2) Digital lifestyle ecosystem: Premium growth is significant, and the comprehensive cost ratio is stable. Benefiting from the increase in the number of travelers and the recovery of the air travel business, the digital lifestyle ecosystem premium was +53% to 5.8 billion yuan in the first half of the year, accounting for 40.4% of premiums; the comprehensive cost ratio remained the same as the same period last year, at 99.8%.
3) Consumer finance ecosystem: risk control and steady management. The consumer finance ecosystem achieved a year-on-year increase of +52% to 2.8 billion yuan in premiums in the first half of the year, and the comprehensive cost ratio only increased slightly by 0.4 pct to 90.7% year-on-year. It mainly benefited from the company's careful adjustment of the loan scale and control of the quality of underlying assets.
4) Automobile ecology: Seize the dividends of the NEV insurance market, increase premiums and improve the overall cost rate. The automobile ecosystem achieved a year-on-year increase of +54% to 8.2 billion yuan in premiums in the first half of the year, mainly benefiting from a recovery in sales in the new car market. Among them, NEV insurance premiums increased by 229%. The comprehensive cost ratio improved by 0.6 pct to 97.3%. Among them, the cost ratio decreased by 2.8 pct year on year and the payout rate increased by 2.1 pct year on year.
Performance on the investment side improved markedly, and the appreciation of the US dollar dragged down exchange gains and losses. As of 2023H1, the company's domestic insurance capital investment assets were 36.2 billion yuan, and the total investment income achieved reached 7.2 billion yuan, a significant improvement over 110 million yuan in the same period last year, mainly affected by factors such as the recovery in the capital market. Furthermore, due to the Fed's interest rate hike and the sharp rise in the US dollar exchange rate, the company lost 190 million yuan in exchange rate in the first half of 2023.
Technology exports are growing steadily, and banks are developing steadily. 1) Science and Technology Division: In the first half of 2023, technology export revenue was +22% year-on-year to 270 million yuan, mainly benefiting from a 35.5% increase in domestic technology exports.
2) Bank Division: ZA Bank achieved net revenue of +13% year-on-year to HK$150 million in the first half of the year, net interest spread continued to increase to 1.87%, bank operating quality continued to improve, and net loss improved by about HK$60 million over last year.
Investment advice: Maintain a buy-A investment rating. We expect Zhongan Online EPS to be 0.6 yuan, 0.8 yuan, and 1.0 yuan respectively for 2023-2025. The target price for 6 months is HK$27.7, corresponding to 2.3x2023 P/B (converted exchange rate).
Risk Alerts: Changes in the macro environment/stricter regulation of Internet financial insurance/capital market fluctuations, etc.