The premium growth rate increased year on year in 2023, and the growth rate slowed in the second half of the year. It is expected to increase by about 15% year on year in 2024. According to monthly report data, the company's premium revenue in 2023 increased 24.7% year on year, up 8.5 percentage points year on year; compared with 1H23, the premium growth rate slowed by 12.9 percentage points, mainly because the company paid more attention to underwriting quality in the second half of the year, especially the consumer finance ecosystem premium growth rate. Looking ahead to 2024, we expect the company to continue to put the quality of coverage first, and the premium growth rate is expected to be around 15%.

Q The comprehensive underwriting cost ratio is expected to continue to improve. The 1H23 comprehensive cost rate fell 0.7 percentage points year on year, mainly due to the health ecosystem. It is expected to increase slightly in the second half of the year, mainly due to the possible weakening of consumer finance assets, and the health insurance payout rate is expected to increase slightly from month to month at a low level. However, from a full-year perspective, the comprehensive cost ratio will still improve year on year, and it is expected that the comprehensive cost rate will continue to improve in 2024.

Q The net losses of the Technology Division and the Bank Division are expected to narrow. We expect technology business revenue to continue the growth trend of the first half of 2023; as the customer base of Zhongan Bank expands, the growth rate of marketing expenses is expected to slow down, while the profit model is more clear, and the net loss is expected to narrow further.

Q Investment returns in 2023 are expected to improve significantly from the low base in 2022, and exchange losses have narrowed significantly, but 2024 faces pressure on the base. The company's total investment income in the first half of 2023 was 723 million yuan. The decline in the A-share market widened in the second half of the year, but the company increased its share of bonds in the first half of the year and reduced the share of equity funds. It is expected that the annual investment income will still improve significantly year-on-year. The RMB exchange rate strengthened from November to December 2023, and exchange losses are expected to decrease significantly year-on-year. Considering the volatile trend in the stock market and the uncertain path of the Federal Reserve's interest rate cut, investment income and exchange gains and losses are expected to face base pressure in 2024.

Q maintains a buy rating. We lowered the investment income assumption. The company's net profit to the mother is estimated to be 550 million yuan in 2023 (not including the investment income of 3.8 billion yuan due to the dissolution of Zhongan International), and the net profit to the mother in 2024/2025 will be 74/92 million yuan, respectively. Based on 1.7 times the 2024 net market ratio (2.4 times the average for the past 5 years), we lowered our target price from HK$32 to HK$21. The company's stock price has been adjusted significantly since the beginning of the year. The current stock price is only 1 times the 2024 net market ratio, which is negative 1.6 times standard deviation from the average net market ratio in the past 5 years. The stock price performance does not match the trend of improving the company's fundamentals. There is room for valuation repair, and the purchase rating is maintained.