Introduction to this report:
The company's net profit for 23 years was +44.1%, mainly due to improved investment income; NBV was in line with expectations, and channel optimization in the industry was favorable to stable performance; financial insurance grew slowly; and the return on comprehensive investment improved significantly.
Summary:
Maintaining the “Overweight” rating, the target price was lowered to HK$9.61 per share, corresponding to P/EV in 2023: +44.1% YoY net profit in 2023, mainly due to significant improvements in investment income; Group included value +8.9% (before adjustment for the HKD caliber assumption)/+2.4% (after adjustment for the HKD caliber assumption, medium- to long-term return on investment assumptions were lowered from 5.0% to 4.5%, and the risk discount rate assumption was lowered from 11.0% to 9.0%), which is in line with expectations. The company's dividend was HK$0.3 per share in '23, compared to 15.4%. The dividend rate was lowered to 17.4% from 33.4% in '22. It is expected mainly due to the increase in absolute profit after implementing the new accounting standards. The 2024-2026 EPS was raised to HK$1.90 (1.49,27.6%)/2.20 (1.91, 15.2%)/2.62 (2.24, 17.1%), considering that the equity market improvement is expected to improve performance in 2024-2026. The target price was lowered to HK$9.61 per share, considering that the current return on investment is still difficult to meet the long-term return on investment assumption.
NBV is in line with expectations. Procyclical channel optimization in the industry favors stable performance: NBV was 26.0% (before HKD calibration assumption adjustment)/0.7% (after HKD calibration assumption adjustment) in '23. Product strategies centered on savings insurance led to high interest rate sensitivity. By the end of '23, traditional life insurance and annuity insurance accounted for 57.5% of the company's original insurance premium income. Individual insurance NBV was 7.2% year-on-year under the same caliber, mainly due to meeting residents' savings needs, resulting in a year-on-year increase in new individual insurance orders. It is worth mentioning that the company's manpower scale declined significantly in '23. As of the end of '23, the number of personal insurance agents dropped sharply by 40.0% year on year to 235,000; while the production capacity of each agent increased significantly by 30.6%. The value ratio of individual insurance increased slightly by 0.3 pt to 25.2%. It is expected to increase the lifetime impact of increases to reduce short-term savings. Banking Insurance NBV was 217.2% year over year under the same caliber, and both new orders and value ratios increased significantly. Among them, new bank insurance policies were 45.3% year over year; the bank insurance value ratio was +6.3pt to 11.9% year over year, which is expected to be mainly driven by an increase in long-term payment periods.
Financial insurance grew slowly, and the comprehensive return on investment improved markedly: 1) Total domestic financial insurance premium income was +1.4% year over year, of which car insurance premiums were -2.0% year over year. The growth was slower than the industry expected to maintain profit levels in order to actively slow down business expansion. The comprehensive financial insurance cost ratio was +1.2pt to 98.4%. 2) The company's investment side performance improved markedly in '23, with a net return on investment of 3.56% and -0.30pt year on year, which is expected to be mainly affected by long-term equity investment losses; the total return on investment was 2.66%, +1.45pt year over year, and equity investment trading contributions increased in '23, but fluctuations in the equity market still put pressure on the total return on investment; and the return on comprehensive investment was 5.01%, +2.66% year over year, which is expected to contribute mainly to the profit improvement of the high-dividend strategy.
Catalysts: Customer demand for insurance savings continues to be strong; the equity market is picking up.
Risk warning: agent reform falls short of expectations; long-term interest rates decline; equity market fluctuates.