Key points of investment
Incident: Sunshine Insurance revealed its 2023 annual report: achieved total premium income of 118.91 billion yuan, an increase of 9.3% over the previous year. It achieved insurance service revenue of 59.09 billion yuan, an increase of 7.5% year on year; net profit attributable to mother was 3.74 billion yuan, down 16.8% year on year; ROE fell 2.3 pct. year on year to 6.0%, and dividend per share remained flat at 0.18 yuan. Performance was in line with expectations, and the decline in profits was hampered by implementation of new financial instrument standards and market fluctuations.
The new life insurance business value (NBV) growth rate is expected to lead the A+H listed industry for two consecutive years. In 2023, Sunshine Life achieved an NBV of 3.60 billion yuan, and the comparable caliber increased by 44.2% year on year. According to the attribution: 1) New policy premiums decreased 4.6% year over year, but margin increased 1.7 pct year over year to 9.4% year over year; 2) By channel, new individual insurance policies increased sharply by 37.2% year over year, but margin decreased to 30.6% year on year (2022 comparable caliber: 37.5%), new banking insurance policies fell 10.4% year on year, and margin increased sharply to 13.8% (2022 comparable caliber: 10.1%), mainly due to a 17.5% year-on-year increase in bank insurance premiums for new instalments, while bank insurance premiums decreased by 29.0%. The company's sub-channel value ratio is not lower than that of its peers, but banking insurance policies and value contributions account for 76.4% and 55.5% (2022:81.3% and 52.5%), which dragged down the overall level. Individual insurance continued to be compensated at a price in 2023. Although the average monthly manpower fell 15.5% year on year to 53,000 people, per capita production capacity increased 44.4% year over year to 21,000 yuan, and the number of people meeting MDRT standards increased 84.7% year on year to 519 people. In 2023, Sunshine Life achieved net profit of 3.21 billion yuan, a year-on-year decrease of 18.4%. The reason is that the release of contract service margin (CSM) was the core source of the company's profit under the new standards. CSM in 2023 increased 4.6% from the beginning of the year, but losses in some businesses measured by the VFA method increased due to short-term fluctuations in the capital market, operating deviations, including expected and actual compensation and expense deviations, loss confirmation, and short-term insurance profits, etc., as a negative drag. The company stated in its annual report that “one body, two wings” promotes the quality and efficiency of individual insurance channels and deepens value development in banking insurance channels.
In 2023, Sunshine Financial Insurance achieved net profit of 978 million yuan, down 36.1% year on year, mainly due to a 49.5% decrease in total investment income, but in 2023 financial insurance comprehensive cost ratio (COR) was 98.7%, down 0.7 pct year on year. For the second year in a row, underwriting turned a loss into a profit. In terms of attribution: 1) The cost rate declined by 2.0 pct, and the payout rate increased by 1.3 points, due to the increase in insurance rates after the epidemic; 2) in terms of insurance categories, car insurance COR was 98.9%, contributing to underwriting profit of 286 million yuan; non-car insurance reversed COR of 98.6%, mainly due to continued tightening of risk exposure in the credit guarantee insurance business, and the guarantee insurance scale decreased by 25.8% year-on-year.
The company adjusted its EV economic assumptions and lowered the long-term return on investment assumption to 4.5% (original 5.0%) and the risk discount rate to 9.5% (original 11.0%). Changes in methods, models, and assumptions dragged down the EV growth rate by 6.9 pcts at the beginning of the life insurance period. In 2023, the company's life insurance ROEV was 11.9% (under the original 2022 model: 13.0%), and the included value of the group and life insurance at the end of the period was 104.06 billion yuan and 78.656 billion yuan, respectively. The comparable caliber increased 6.4% and 8.5% from the end of the previous year.
Comprehensive investment returns have improved under the new guidelines, and cash dividend ratios are expected to lead listed insurers. The year-on-year growth rate of the company's net/total/comprehensive investment income in 2023 was +15.9%/-23.4% +93.8%, respectively, and the net/total/comprehensive return on investment reached 4.0%/3.3%/4.8%, +0.1/-1.6/+2.0pct, respectively. Total investment income was dragged down by the capital market. The improvement in comprehensive investment income was mainly due to a sharp increase in losses and losses in financial assets available for sale under the old 2022 guidelines, while FVOCI debt instruments improved surplus in 2023. Affected by financial changes in insurance contracts with convertible profit and loss of $11.239 billion, consolidated income attributable to mother at the end of the period turned negative to -$2,037 billion (2022 restatement: +3.457 billion yuan). The company stabilizes shareholder dividends and continues to generate returns for shareholders. In 2023, the dividend per share remained flat at 0.18 yuan year on year, and the dividend payment ratio increased to 55.4%. It is expected to lead listed insurers.
Profit prediction and investment rating: leading in value growth rate, deepening New Sunshine strategy. The company continues to build a new sunshine strategy with three core elements: building technological sunshine, creating value sunshine through model innovation, and creating a kind-hearted sunshine with a culture of love and responsibility.
According to the downgraded profit forecast disclosed in the annual report, we expect net profit to be $7.2, 76, and 8.1 billion yuan for 2024-26 (the original 2024-25 forecast was $81 billion and 9.1 billion yuan, with an additional 26 year forecast), maintaining the “buy” rating.
Risk warning: The equity market continues to decline, and the banking insurance channel moat is unstable