Incident: The company disclosed its 2023 annual report, achieving full year operating profit of 118 billion yuan (YoY -19.7%), net profit to mother of 85.7 billion yuan (YoY -22.8%), and a new business value of 39.3 billion yuan (YoY +36.2%) under a comparable scale. Affected by the reduction in the hypothetical return on long-term investment to 4.5% and the reduction in the risk discount rate to 9.5%, the included value of life insurance reached $831 billion at the end of 2023.
It is planned to pay a dividend of 2.43 yuan per share (YoY +0.4%) for the full year of 2023, and the total amount of dividends has increased for 12 consecutive years.
We believe that the core focus of the 2023 annual report is: 1) NBV's performance is growing at a remarkable rate, and the effects of life insurance reform are showing. Influenced by factors such as the popularity of savings products and the promotion of personal insurance and banking insurance reforms, it is used to calculate +38.9% of the NBV premiums compared to the same period, driving the NBV of personal insurance and banking insurance +40.3% and +77.7%, respectively, which in turn drives the overall NBV +36.2%. 2) Market fluctuations have intensified, and asset management losses have dragged down profits. Affected by large fluctuations in the capital market, the asset management business achieved net profit of 20.7 billion yuan to mother in 2023, which significantly dragged down overall profit performance. 3) Adjust actuarial assumptions and keep dividends stable. The fertilization calculation assumes the effect of the adjustment. The adjusted NBV and EV are -20.8% and -10.7% respectively compared to the caliber of the same period before the adjustment. The company plans to distribute a dividend of 1.5 yuan per share for the end of 2023, with a dividend of 2.43 yuan per share for the full year (YoY +0.4%), and the total amount has achieved positive growth for 12 consecutive years.
NBV improved significantly and insisted on high-quality transformation. In 2023, the company's life insurance and health insurance business achieved operating profit of 105.1 billion yuan (YoY -3.2%), and a comparable NBV of 39.3 billion yuan (YoY +36.2%). Mainly due to the deepening of the “4 channel +3 product” strategy, the NBV per agent increased by 89.5%. 1) The agent structure has been optimized, and the per capita income has increased significantly. By the end of 2023, the number of individual insurance channel agents had dropped to 347,000 (YoY -22.0%). In 2023, per capita production capacity was +89.5% to 90,285 yuan, and the proportion of “excellent +” new manpower was +25.2pct compared to the same period last year.
2) Joint efforts through multiple channels to increase the insurance policy continuation rate. In 2023, banking insurance channels, community grids and other channels contributed 16.5% of Ping An Life Insurance's NBV. Among them, the banking insurance channel NBV was +77.7% compared to the same period, and the community grid formed a team of more than 15,000 highly qualified specialists, significantly improving service effectiveness. In 2023, the 13-month and 25-month corporate life insurance policy continuation rates were +2.5pct and +6.8pct to 92.8% and 85.8%, respectively.
The comprehensive cost ratio of financial insurance has increased slightly, and the impact of guarantee insurance losses is expected to gradually clear up. In 2023, the company's financial insurance achieved insurance service revenue of 313.5 billion yuan (YoY +6.5%). Affected by guarantee insurance and liability insurance underwriting losses, the financial insurance business achieved operating profit of 9 billion yuan (YoY -11.4%), and a comprehensive cost ratio of 100.7% (YoY+1.1 pct). Among them, car insurance service revenue was 209.5 billion yuan (YoY +6.1%), and the comprehensive cost ratio of car insurance increased to 97.7%.
Investment performance remains under pressure, with a total return on investment of 3%. Affected by market interest rate fluctuations, depreciation of investment assets, and increased market volatility, the total return on investment was 3.0% (YOY+0.6pct) and a net return on investment of 4.2% (YOY-0.5pct) in 2023. Looking at the investment structure, as of the end of 2023, stocks and funds accounted for 6.2% and 3.1%, respectively, +0.9 pct and -0.3 pct year over year; bond investment accounted for +3.5 pct to 58.1% year over year.
The actuarial assumption is that adjustments will improve the credibility of EVs and that dividends remain steady. At the end of 2023, the Group's built-in value reached 1.39 trillion yuan, and the life insurance and health insurance business reached 831 billion yuan. Based on comprehensive considerations of the macro environment and long-term interest rate trends, the company prudently lowered the long-term return on investment assumptions containing value to 4.5% in the life insurance and health insurance business to 9.5% in 2023. The adjusted NBV and EV are -20.8% and -10.7% respectively compared to the previous period, which will help enhance the company's EV credibility. In addition, the company plans to pay a dividend of 2.43 yuan per share (YoY +0.4%) in 2023 to continue to give back to shareholders by increasing dividends and repurchasing shares.
Investment advice: Maintain a Buy-A investment rating. We expect Ping An of China's 2024-2026 EPS to be 6.06 yuan, 7.09 yuan, and 8.15 yuan, respectively, and will be given 0.57x2024 P/EV, corresponding to a 6-month target price of 45.54 yuan.
Risk warning: large fluctuations in the equity market, uncertainty in regulatory policies, continuing decline in the number of agents, etc.