Incidents:
The company released its 2023 annual report. Under the new standards, the company achieved insurance service revenue of 503.9 billion yuan, +7.5% year over year; net profit to mother was 22.3 billion yuan, -12.1% year over year.
Net profit was under slight year-on-year pressure, mainly due to capital market fluctuations 1) Under the new standards, the company achieved net profit of 22.322 billion yuan, -12.1% year-on-year, and the decline in net profit narrowed from the previous three quarters. The company's net profit is under pressure, mainly due to the year-on-year decline in investment income due to capital market shocks (the company's net investment income -25.6% YoY). By business segment, the net profit of People's Insurance Financial Insurance, People's Insurance Life Insurance, and People's Insurance Health Insurance was 245.66/0.03/1,836 billion yuan respectively, -16% /loss turned into profit/ -53% year-on-year respectively. People's insurance is still the company's main source of profit contribution.
2) The company plans to distribute a dividend of RMB 0.156 per share, -6% compared to the same period last year. The dividend ratio is 31% (calculated based on total dividends/net profit from the new standard), +1PCT year over year (30% in '22, calculated based on total dividends/net profit from the old standard).
Human Insurance COR performed well, exceeding expectations and completed company guidelines 1) Human Insurance achieved underwriting profit of 10.189 billion yuan, -29.1% over the same period last year. The overall COR was 97.8%, +1.2PCT year over year, with payout/expense ratios of 70.6%/27.2%, respectively, and the same as +1.2PCT/year over year, respectively. The company's COR is significantly superior to its peers and has exceeded expectations and completed the preliminary guidelines (car insurance COR< 97% & non-car insurance COR< 100%), demonstrating the company's excellent underwriting profitability.
2) By type of insurance, for car insurance, the company's car insurance COR was 96.9%, +2.4PCT compared to the previous year. Auto insurance COR improved month-on-month (97.4% in the first three quarters) and was superior to peers, mainly due to the company actively controlling expenses and optimizing the business structure. For non-car insurance, the company's non-car insurance COR was 99.1%, -1.1 PCT year over year.
Among them, the COR for agricultural insurance/ health insurance/ liability insurance/ enterprise financial insurance was 95.8%/97.7%/107.0%/103.8%, respectively, and +1.4/-2.8/-2.1/-0.4PCT, respectively. The company's non-car insurance COR improved year-on-year, mainly due to the company strengthening risk management and reducing the scale of high-loss insurance types. Looking ahead, as the company actively implements the new “insurance+risk reduction service+technology” model to promote payout rate optimization, the underwriting profitability of human insurance is expected to continue to improve and its advantages to continue to expand.
Significant improvement in the value ratio of personal insurance business
1) People's Insurance Life Insurance achieved NBV of 3.664 billion, +69.6% year over year. The main reason was that the company actively optimized its business structure to drive a significant increase in NBV Margin. Human Insurance NBV Margin +2.5PCT to 7.1% year over year.
2) Human Insurance Health Insurance achieved NBV of 2,826 million, +182.9% year-on-year, mainly due to the continuous improvement of the company's business structure, which led to a significant increase in NBV Margin. Human Insurance Health NBV Margin +5.4PCT to 9.1% year over year. In '23, People's Insurance Health achieved a net profit of 1,836 million yuan, with good profitability.
Investment income was under year-on-year pressure, mainly due to declining interest rates and equity market shocks. The company achieved total/net investment income of 441.15/58.425 billion yuan, or -19.6%/-2.7% year-on-year respectively. The total/net return on investment was 3.3%/4.5%, respectively, -1.3/-0.6PCT year-on-year. The company's investment performance is under pressure, mainly affected by capital market fluctuations.
Profit Forecasts, Valuations, and Ratings
Considering that the company's underwriting profitability is expected to continue to improve and the capital market is expected to pick up, we expect the company's net profit to be 284/320/34.9 billion yuan in 2024-2026, respectively, with corresponding growth rates of +27%/+13%/+9%, respectively. In view of the outstanding competitive advantage of the company's financial insurance and the significant improvement in the personal insurance value ratio, we maintained a target price of HK$3.99 and maintained a “buy” rating.
Risk warning: Natural disasters exceeded expectations, market competition intensified, the transformation of the personal insurance business fell short of expectations, and the capital market fluctuated greatly.