[Event] Zhongan Online announced its 2023 interim results: 1) Net profit was 220 million yuan, turning a loss into a profit (loss of 640 million yuan in the same period in '22). Both underwriting profit and investment income improved. Among them, the insurance sector had a net profit of 450 million yuan, and the technology/banking sector had net losses of 250 million yuan and 180 million yuan, respectively. 2) Gimu's net assets were 16.1 billion yuan, +2.1% from the beginning of the year. 3) The comprehensive cost ratio fell to 95.8% year-on-year by -0.7 pct.
Insurance sector: premiums are growing rapidly, comprehensive cost ratios are improving, and the share of self-operated channels continues to rise. 1) Premium is growing rapidly. The company's total premium revenue for the first half of the year was 145 billion yuan, +37.5% year-on-year. Among them, health/digital lifestyle/consumer finance/auto ecology premiums were +15.9%/+52.8%/+52.0%/+54.3%, respectively. Insurance service revenue was 12.7 billion yuan, +23.9% year on year; insurance service performance was 580 million yuan, +35.1% year on year. ① Health Ecology customer operations were very effective. In the first half of the year, there were about 10.26 million individual insurance payers, of which 22.5% were multi-policy users, and the per capita premium was about 489 yuan, +8.5% over the same period. ② The digital lifestyle ecological return insurance business increased by 45.9% year-on-year, mainly benefiting from the rapid development of the e-commerce economy. 2) The comprehensive cost ratio improved year over year. The comprehensive cost rate for the first half of the year fell to -0.7 pct year on year to 95.8%, of which the payout rate was 57.1% and -0.6 pct year on year, mainly due to product structure; the cost rate was 38.7%, -0.1 pct year on year. Underwriting profit was 540 million yuan, +47.6% year on year.
3) All business segments achieved underwriting profits, and the overall cost ratio of health ecology improved significantly over the same period last year. The comprehensive cost ratio of the health/automobile/digital life/consumer finance ecosystem was -3.8 pct/-0.6 pct/flat /+0.4 pct, respectively, and the health ecosystem payout rate was -17.1 pct year on year, mainly due to the increase in the share of new insurance and the level of risk management. 4) The share of self-operated channels continues to rise. In the first half of the year, premiums from self-operated channels reached 4.4 billion yuan, +90.6% year-on-year, accounting for about 30.6% of the company's total premiums, and +8.6pct over the previous year.
Technology sector and others: The technology export business has returned to normal growth, and losses in the technology sector have increased. 1) Technology output revenue was 270 million yuan, +22% year on year, returning to normal high growth. Its revenue in China was +35.5% year-on-year, mainly benefiting from the recovery of the domestic industry. R&D investment increased to 699 million yuan, +6.5% over the same period last year. 2) The loss in the technology sector increased from $0.16 million in the same period in '22 to $247 million. 3) ZA Bank has nearly 700,000 retail users, a deposit balance of over HK$10.7 billion, and a loan balance of over HK$4.9 billion, maintaining its status as the number one virtual bank in Hong Kong. In the first half of 2023, ZA Bank's net loss improved by HK$57 million year on year, and the net loss ratio narrowed by 60 pct.
4) Zhongan Insurance brokerage revenue was +92.5% year-on-year, and ZA Insure's net loss narrowed sharply.
Investment: The total return on insurance investment has increased significantly. 1) As of the middle of the year, the company's domestic insurance investment assets reached 36.2 billion yuan, -0.8% compared with the beginning of the year. 2) The total return on investment in domestic insurance was 4.0%, +3.4 pct. It mainly benefited from a recovery in the capital market and an increase in return on changes in fair value; the net return on investment was 2.2%, the same as the previous year.
3) The share of cash/bonds/stocks+funds was 2%/57%/8%, respectively, compared to the beginning of the year - 4 pct/+2 pct/-3 pct.
We are optimistic about the company's long-term development potential and give it a “superior to market” rating. We believe that the company is very different from traditional insurance companies in terms of main business, customer size, technology level, human structure and development direction and potential, but is closer to an Internet technology company. Therefore, when calculating the valuation multiplier of the comparable company of Zhongan Online, we gave the average 2023 PB 3.03x larger weight (60% or 70%), China Financial Insurance 2023E PB 0.83x smaller weight (40% or 30%), and comprehensively obtained a comparable company valuation multiplier of 2.21x-2.43x 2023E PB. The corresponding reasonable value range was RMB 24.09 - RMB 26.57, corresponding to HK$26.32 - HK$29.04. The current stock price corresponds to a valuation of 2023E 2.0XPb, a “superior to market” rating.
Risk warning: Health insurance growth falls short of expectations; technology investment continues to be high; equity markets are declining.