Incident: China Taiping announced its 2023 interim results. The company's net profit for the first half of 2023 was +20.5% year-on-year to HK$5.22 billion.
Overall: 2023H1's net profit was +20.5% year-on-year to HK$5.22 billion, mainly due to excellent equity investment performance. Unrealized revenue from the company's FVTPL assets increased from -HK$8.5 billion in the same period last year to +HK$3.6 billion (high-scoring Hong Kong stocks held by the Group beat the Hang Seng Index (including interest) 11.42 pct, driving the Group's overall equity to beat the Shanghai and Shenzhen 300 Index 2.19 pct). Among them, the net profit of life insurance business, domestic financial insurance, overseas financial insurance, reinsurance, and asset management business was +14.8%, -67.9%, +10.1%, +19.3%, and -85.8%, respectively.
Equity attributable to common shareholders was -2.3% compared to the end of last year to HK$82 billion.
Life insurance: 2023H1NBV +19.2% yoy to HK$3,955 billion (NBV +28.5% to $3.65 billion under the RMB caliber), mainly driven by +42.4% of new order premiums. NBV Margin was -1.3pct to 12.2% yoy. 1) Individual insurance channels: NBV +22.4% year on year to HK$3.28 billion, of which +21.8% of new insurance premiums were added, mainly brought by long-term insurance first-year payments of +23.0% to HK$13.39 billion; NBVMargin was +1.3 pct to 18.6% year on year. 2) Banking insurance channels: NBV +0.4% year on year to HK$600 million, of which new order premiums were +82.5%, mainly driven by long-term insurance first-year payments of +70.6% to HK$13.41 billion, but NBV Margin was -2.4pct to 3.6% year on year.
The company has increased its clean-up efforts this year. The number of agents was -18.1% to 32,000 (a decrease of 71,000 people) from the beginning of the year, but production capacity (monthly per capita prepayment of original premiums) was +32.8% to 18,000 yuan (+4,482 yuan) compared to 2022, mainly due to better savings insurance sales.
Life Insurance EV was +5.0% from the beginning of the year to HK$254.9 billion (RMB caliber +8.4% to HK$235 billion); contract service margin decreased 1.6% from the end of last year to HK$217.8 billion. Among them, the marginal life insurance contract service margin increased 1.4% compared to the end of last year, new business contribution contract service margin was +9.4%, and Taiping Life's new business contribution contract service margin was +15.0%.
Domestic financial insurance: The 2023H1 comprehensive cost ratio was +2.4pct to 97.6% year on year, maintaining good profit under a low base. The original premium was +3.1% year-on-year, and the market share was -0.1 pct to 1.8% compared to 2022. By type of insurance, auto insurance was -3.7%, water insurance was -5.3%, but non-water insurance was +14.1%. It is expected to be mainly brought by insurance types such as liability insurance, agricultural insurance, and health insurance.
Investment: 2023H1 net return on investment was 3.63%, year on year -0.31 pct; total return on investment was +105.9% to HK$23.7 billion, mainly due to excellent equity investment performance. Capital gain increased from -HK$113 billion to +HK$1.6 billion, driving the total return on investment to +1.91 pct to 3.89% year on year; considering changes in the market value of FVOCI assets, the comprehensive return on investment was 5.92%, +4.0pct year on year. The company's current exposure to real estate debt and financial products is only HK$27.1 billion, accounting for 1.9% of total assets, compared to the end of last year - 0.1 pct. The main projects are in first-tier cities, provincial capitals, or economically developed second-tier cities.
Investment suggestions: In the first half of the year, the company's NBV and EV growth in life insurance and profit growth were impressive under the RMB caliber. Looking ahead to the second half of the year, digesting the impact of customer consumption, adapting to new products, and actively decelerating at the company level, it is expected that NBV growth will slow down. However, on the premise that demand for savings is still high, that the middle and high-end teams are stabilized, that there are excellent increases and improvements, and that there is sufficient preparation for a good start, it is expected that NBV will achieve a good start in '24 and positive NBV growth throughout the year. Currently, the company is only 0.14 times the 2023 PEV, which is in the 4% of historical valuations. Covered for the first time, giving it an “increase in holdings” rating.
Risk warning: The size of agents continues to decline or production capacity increases fall short of expectations; long-term interest rates decline; equity market fluctuations increase; subsequent insurance policy repairs fall short of expectations.