Industry development beta and business alpha help the company grow rapidly. Reviewing the development history of Sunshine Insurance, the company took advantage of the liberalization of insurance industry licenses. In 2005, the company took financial insurance as the vanguard, developed rapidly under policy dividends, and locked in the top 10 position in the industry in a short period of time; in 2007, it accurately established the life insurance business and gradually grew into a core source of performance contribution. The company's equity structure is scattered and the degree of marketization is high; the core management has been deeply involved in the industry for many years, and is expected to continue to contribute to the business alpha under the “One Gather Three” development strategy.
Personal insurance: NBV has performed well, and the banking insurance channel has significant advantages. The sharp rise in volume and price is expected to help NBV continue to grow. 1) Value creation ability is superior to peers: Due to the impact of the pandemic and industry transformation, A-share listed insurers have declined sharply in recent years, but Sunshine Life maintained a contrarian growth trend. In 2021/2022, NBV growth rates reached 4.4%/0.1% year-on-year respectively, making it the only listed insurer to achieve positive NBV growth. One reason is the strong growth of new orders. The year-on-year growth rate of the company's new orders in 2020-2022 reached 7.6%/4.5%/3.8%, respectively; the second reason was that NBVM performed relatively steadily, and the company continued to optimize the delivery structure. In 2020-2022, NBVM (NBV/New Order Premium Calibration) was 9.0%/9.0%/8.7%, respectively, and the stability was superior to peers. Benefiting from the opening up of offline exhibition channels, strong demand for savings products, and pre-release of customer demand due to the pre-release of customer demand, 2023H1's NBV increased 37.1% year-on-year on the basis of a high base, and growth continues to show. 2) The banking insurance channel has significant advantages: in 2022, the company's banking insurance channel contributed 81.3%, and the promotion period strategy achieved remarkable results. The 2022 channel long-term insurance contract contribution accounted for +19.0pct to 39.9% compared to 2019; the average net production capacity increased steadily, and the 2022/2023H1 network average production capacity yoy +24.7%/+31%. After the implementation of “integrated reporting and banking”, it is expected that the banking insurance channel's new policy premiums and NBVM will improve in both directions, and it is expected that it will continue to contribute to NBV growth.
Property insurance: Volume and price are rising rapidly, and underwriting profitability is expected to continue to improve. More measures have been taken to reduce costs and increase efficiency. The cost rate has been steadily reduced, and the comprehensive cost ratio has been significantly optimized. In 2022, Sunshine Financial Insurance's comprehensive cost ratio yoy-5.2 pct reached 99.9%, and underwriting profit reached 42 million yuan; of these, car insurance and non-car insurance contributed 6.32/590 million yuan respectively. 2023H1 financial insurance premium yoy +5.1% to 21.929 billion yuan, with a market share of +0.31pct to 3.04% compared to '22; the comprehensive cost ratio was -0.3pct to 98.5% year-on-year. Looking forward to the future, we expect: 1) volume: premiums are expected to return to growth as the product structure is gradually adjusted; 2) price: excellent structure and cost control strategies are expected to continue to show results, helping the overall cost ratio continue to improve.
Investment side: The performance is relatively steady, and the third-party business is developing rapidly. The average net and total return on investment of the company in 2019-2022 was 4.93%/5.68%, ranking among the highest in the industry; as of the end of June 2023, the company's third-party asset management business accounted for 48.9%, which showed that the market recognized the company's investment ability.
Investment analysis opinion: Under the industry's beta+ operating alpha two-wheel drive trend, we continue to be optimistic about the long-term growth of life insurance value and the improving trend in financial insurance underwriting profitability, and give it a “buy” rating. The company's net profit for 23-25 is estimated to reach $49.14/62.29/8.048 billion, respectively, or +0.7%/+26.8%/+29.2% year-on-year. Using an absolute valuation method, the 2024 Sunshine Insurance value is estimated to be $64.937 billion, corresponding to a target price of HK$5.74 per share in 2024, which is covered for the first time to give it a “buy” rating.
Risk warning: Risk of tightening regulatory policies, risk of falling long-term interest rates, risk of market fluctuations, extreme market conditions in the Hong Kong stock market.