Incident: The company disclosed 2023 results, which were in line with expectations. In 2023, the company achieved operating profit of 118 billion yuan/yoy -19.7%, mainly due to the drag of asset management business. NBV (comparable caliber) 39.3 billion yuan/yoy +36.2% (forward-looking forecast +38.2%, in line with expectations); NBVM 23.7%/yoy-0.5pct. Financial insurance business COR 100.7%/yoy+1.1pct. Under pressure on profits, the dividend per share was 2.43 yuan/yoy +0.4%, which remained steady, demonstrating the importance the company attached to investors.
Assuming that the adjustment reduced the size of EVs by 10.7%, OPAT was dragged down by the asset management business -19.7% year over year. In 2023, the company achieved operating profit of 118 billion yuan/yoy -19.7%, mainly due to asset impairment such as real estate in the asset management business (-195 billion yuan, 3.8 billion in the same period last year), while the three core businesses of life insurance, health insurance, property insurance, and banking remained stable. The total operating profit of the three businesses was 140.9 billion yuan/yoy -2.8%. The company's CSM balance is 768.4 billion yuan/yoy -6.1%, which is expected to be mainly affected by factors such as the release of existing insurance policy performance and changes in the withdrawal rate. The company's EV was 1,390.1 billion yuan, -2.4% from the beginning of the year; of these, the EV in the life insurance and health insurance business was 831 billion, -5.0% from the beginning of the year. Assuming the adjustment, the EV in the life insurance and health insurance business decreased by 10.7%. It is assumed that the adjustment will increase confidence in life insurance indicators.
Life insurance has achieved high-value development, and banking insurance channels are gaining momentum. The life insurance business achieved operating profit of 106.1 billion yuan/yoy -3.4%; NBV 39.3 billion yuan/yoy +36.2%; NBVM 23.7%/yoy-0.5pct. Considering that the company lowered the return on investment value to 4.5% and the risk discount rate to 9.5%, the new assumptions achieved NBV of 31.1 billion yuan and NBVM of 18.7%, -20.8% and -5pct, respectively, compared to before the adjustment.
Agent channel efficiency improved dramatically: New business value (comparable caliber, old assumption) of 32.2 billion yuan/yoy +40.3% was achieved in 2023. At the end of the year, the number of personal life insurance sales agents was 347,000/yoy -22%; in the context of continuous clearance of agents, the average per capita monthly income was 9,813 yuan/yoy +39.2%, the per capita new business value increased by 89.5%, and the proportion of “excellent +” new manpower increased by 25.2 pct over the same period last year. Efficiency was greatly improved, and the results of high-quality channel transformation were evident.
The banking insurance channel is growing strongly: achieving new business value yoy +77%; achieving 19.7 billion yuan/yoy +79% of the new policy premium, accounting for 10.8% of the new policy premium, yoy +1.6pct, of which the prepayment premium is 12.1 billion yuan/yoy +37%. The premium structure continues to improve, and the integration of reporting and banking continues to advance, channel NBVM is expected to increase.
The policy continuation rate increased dramatically: the continuation rate was 92.8%/yoy+2.5pct in January; the continuation rate in January was 85.8%/yoy+6.8pct. The policy quality continued to improve, and the business quality improved steadily.
Financial insurance COR increased slightly due to increased competition and catastrophe. The financial insurance business achieved insurance service revenue of 313.5 billion yuan/yoy +6.5%, COR 100.7%/yoy+1.1pct, with a comprehensive expense ratio of 29.2%/yoy+0.9pct; comprehensive compensation rate of 71.5%/yoy+0.2pct. The increase in COR was mainly due to increased market competition, strategic adjustments in the company's business structure, and an increase in disaster compensation in the third quarter.
Auto insurance was under pressure due to the catastrophe: the comprehensive cost rate was 97.7% /yoy+1.9pct, and the underwriting profit of the car insurance business was 4.7 billion yuan/yoy -41%, mainly due to the disaster in the third quarter. The number of vehicles covered by the company was +6.4%, and the car insurance business insurance service revenue was 209.5 billion yuan/yoy +6.1%.
Non-car insurance is dragged down by guaranteed insurance, and insured losses: non-car insurance business insurance service revenue of 103.9 billion yuan/yoy +7.4%. Health insurance/accident insurance/corporate financial insurance/liability insurance/guarantee insurance COR was 95.2%/107.7%/106.3%/131.1%, respectively. The company's continuous pressure drop guarantees the scale of insurance, and risk exposure quickly converges, and its impact on overall business quality will be greatly reduced in the future.
Asset side: Steady growth in scale and reduction in real estate exposure pressure. The company's investment portfolio exceeded 4.72 trillion yuan, up 9.0% from the beginning of the year. Among them, fixed income assets accounted for 73%, bond investment accounted for 58%; stocks accounted for 6.2%, and equity funds accounted for 3.1%. The return on investment improved in 23 years: the composite/total/net return on investment was 3.6%/3.0%/4.2%, respectively, +0.9/+0.6/-0.5pct year-on-year, respectively. The return on investment improved, mainly due to equity market fluctuations and the impact of the low base over the same period. The real estate scale continued to drop: the investment balance was 204 billion yuan, accounting for 4.3%, down 0.2 pct from 1H23. Of these, property rights accounted for 78.4% of real estate investment, mainly in rental properties such as high-quality commercial offices, logistics real estate, industrial parks, and long-term rental apartments. Debt investment accounted for 17.3%, and other equity investments accounted for 4.3%, and overall risk was manageable.
Investment advice: Maintain the company's “Highly Recommended” rating. Debt side: The agency team continues to be optimized, efficiency has been greatly improved, business quality has been steadily improved, and channel transformation results have been shown. It is expected that 24 years will continue to benefit from the concentration of head management brought about by the integration of banking insurance channels. Asset side: The scale of investment is growing steadily, real estate exposure continues to drop, and overall risk is manageable. It is expected that it will continue to improve as the market recovers. Net profit for 24-26 is estimated at 993, 1064, and 115.5 billion yuan, with year-on-year growth rates of +16%, +7.1%, and +8.6%, respectively; NBV of 436, 482, and 53 billion yuan in 24-26, respectively, 11.2%, 10.5%, and 9.9% year-on-year, respectively. The current closing price corresponding to 24E-26E dynamic P/EV is 0.49 times, 0.47 times, and 0.43 times, respectively.
Risk warning: 1) Policy implementation falls short of expectations; 2) A sharp decline in the number of agents; 3) Sudden catastrophe; 4) equity market fluctuations and credit risk exposure.