Core viewpoints

The company is the leading private insurance group in China; since its establishment, under the leadership of experienced management, it has achieved steady growth of premium income and gradual increase of market share, and its growth is obviously better than that of the industry as a whole. In terms of life insurance business, the company adheres to the value development strategy, and the business quality is gradually improved; in recent years, the company's NBV has achieved positive growth under the pressure of the transformation of the industry, highlighting the stable value creation ability. In the property insurance business, the company's premium scale has improved steadily, the products have been continuously cultivated and refined, the overall comprehensive cost rate has improved, and the underwriting profit is expected. In terms of asset management and investment, the company has outstanding investment ability, the rate of return on investment is ahead of the industry, and the scale of third-party management is relatively high, which is expected to bring new sources of income for the company. We are optimistic about the company's excellent business ability and growth potential at a low base.

Title

Hundreds of billions of private insurance groups, stick to the main line of value creation

The company is a leading private insurance group in China; since its establishment, it has achieved steady growth of premium income and gradual increase of market share under the leadership of experienced management. In terms of premium income as of the first half of 2023, the market share of the company's life insurance business was 1.85%, and that of property insurance business was 3.04%, ranking 9th and 7th respectively. In addition to the main insurance business, the company also through the pension community, sunshine and hospitals and other businesses to explore coordination with the insurance business and meet diversified needs, the synergy effect is significant.

Life insurance business: adhere to the value development strategy, gradually improve the quality of business (1) Premium: in 2019-2022, the company's life insurance premium income increased from 37.88 billion yuan to 56.59 billion yuan, during which the CAGR reached 14.3%. The total premium income of the company's life insurance business reached 45.848 billion yuan, which was + 9.0% compared with the same period last year.

(2) structure: or due to the short development time of the company's life insurance business and less policy accumulation, the proportion of new life insurance premiums is 47.0%, which is significantly higher than that of the same industry. Among them, in recent years, the company has focused on the development of high-value payment business. From 2019 to 2022, the proportion of the first-year premium of long-term insurance in the first year of long-term insurance has increased from 35.3% to 45.9%. The proportion of premiums paid by 23H1 is as high as 64.7%, laying the foundation for future value growth.

(4) Channel: bancassurance channel is the core sales channel of Sunshine Life. In 2019-202, the proportion of premiums in the bancassurance channel increased from 54.6% to 66.3%, which reached 67.7%, which is the main source of the company's premium income. On the other hand, the agent channel insists on value development, and the proportion of premium payment is more than 90%, which is one of the main sources of the company's new business value.

(5) value: the company's NBV is small but growing fast, and in recent years, under the pressure of industry transformation, the company's NBV has achieved positive growth, highlighting a stable ability to create value; previously or because the higher bancassurance channel and bulk payment business accounted for less than 10% of the company's NBVM, lower than the major peers; but as the proportion of the company's premiums continues to increase, 23H1's NBVM has rebounded to 13.5%. As of 23H1 Sunshine Life, the embedded value is 81.158 billion yuan, compared with the end of 22 + 6.9%.

Property insurance business: the scale of premiums is steadily improving, and the products are refined continuously. (1) premiums: in 2019-2022, Sunshine property insurance premium income increased from 39.5 billion yuan to 40.38 billion yuan, with a CAGR of 0.7%. The scale of premium income is relatively stable; among them, car insurance premiums account for about 60%, which is the main source of sunshine property insurance premium income; but non-car insurance premiums grow rapidly and the proportion continues to increase.

(2) car insurance: affected by the decline of the average premium after the comprehensive reform of car insurance, the growth of the company's car insurance premium is weak. From 2019 to 2022, the car insurance premiums of Sunshine property Insurance were 246.1 yuan, 241.0 yuan, 231.8 yuan and 24.63 billion yuan respectively, which remained relatively stable. 23H1 achieved 12.88 billion yuan in car insurance premiums, + 3.0% year-on-year. The company's auto insurance business has good profitability, and the level of comprehensive cost rate is similar to that of major peers; under the new standards, the comprehensive underwriting cost rate of 23H1's auto insurance business is-0.7pct to 98.2% compared with the same period last year, and the business quality is further improved.

(3) non-car insurance: from 2019 to 2022, the premiums of sunshine property insurance non-car insurance business were 14.89 billion yuan, 131.7 yuan, 173.6 yuan and 15.75 billion yuan respectively, and the proportion of premium income increased from 37.7% to 39.0%. Among the non-car insurance premium income, the premium income of guarantee insurance and mental health insurance accounts for a relatively high proportion, accounting for about 70% of the overall premium income of non-car insurance business, which lays a foundation for non-car insurance premium income. Since 2022, based on the judgment of the macro situation, the company has taken the initiative to optimize the business structure and shrink the scale of guarantee insurance business; 2023H1's guarantee insurance premium income is-45.1 to 1.74 billion yuan compared with the same period last year. The comprehensive non-automobile insurance cost rate of the company from 2019 to 2022 was 106.4%, 106.2%, 93.9% and 104.1% respectively. In the first half of 2023, the comprehensive non-automobile insurance cost rate was 98.7% under the new standard. The overall comprehensive cost rate has been improved, and the underwriting profit is expected.

Asset management and investment: the scale of third-party asset management is relatively high, and the rate of return on investment is higher than that of the same industry. (1) similar to premium income, the company's total investment assets are smaller but grow faster than those of the same industry; from 2019 to 2022, the total investment assets of Sunshine Insurance Group increased from 282.57 billion yuan to 428.84 billion yuan, and the CAGR reached 14.9%. The total investment assets of 2023H1 further increased to 466.6 billion yuan, which is higher than that of the same industry. (2) among them, the overall asset allocation structure of the company remains stable, but the proportion of equity assets is relatively high; as of 23H1, the proportion of fixed income assets and equity assets is 70.1% and 21.0%, respectively, which can better match the liability structure. (3) in recent years, or mainly affected by the downward long-end interest rate, the net investment return, which is mainly dividend and interest income, has been under pressure; however, due to the high equity ratio, the company's total investment return is ahead of the industry; 23H1's net / total investment return is 3.4% and 3.5% respectively. (4) the company has made great efforts to develop third-party asset management business in recent years. In 2019-2022, Sunshine Asset Management entrusted to manage third-party assets increased from 123.04 billion yuan to 414.98 billion yuan, CAGR reached 50.0%, accounting for 54.8% of AUM, up from 31.2% in 2019.

Investment suggestion: the company is the leading private insurance group in China; in recent years, under the leadership of experienced management, the company insists on focusing on the main insurance industry and value development, and continues to promote customer strategy, building a customer-driven development model, constantly polishing its products and service system around customer needs, balanced development of production and life insurance, rapid growth of premium income, leading to the growth rate of the industry. New business value and comprehensive cost rate continue to improve, profitability continues to enhance we use segment valuation method to calculate that the reasonable market value of the company should be 63.729 billion yuan, corresponding to the target price of HK $5.95, compared with the closing price on October 10, there is still 43% room to rise; we are optimistic about the company's excellent operating ability and growth potential at a low base, covering it for the first time and giving it a buy rating.