Introduction to this report:
The company's adjusted net profit for 23 years was 294 million yuan, which turned a loss into a profit, mainly contributed by improved investment income; premiums grew rapidly and underwriting profits were steady; technology exports grew rapidly, and virtual banks further reduced losses.
Summary:
Maintaining the “increase in holdings” rating, the target price was lowered to HK$29.88 per share, corresponding to the 24-year P/B of 2.0 times: the company's net profit for 23 years was RMB 4,078 billion, including adjusted net profit of RMB 294 million, which confirmed one-time investment income of $3.784 billion after excluding Zhongan International's conversion to a joint venture was 294 million yuan, which turned a loss into a profit, mainly due to three aspects: 1) A slight increase in underwriting profitability. The group's underwriting profit in '23 was RMB 1,310 million, +1.7% year-on-year; the comprehensive underwriting cost ratio was 95.2% year-on-year upgrade 1.0 pt, mainly due to the decline in consumer finance underwriting profits; 2) Significant improvements on the investment side, with investment income of 4.961 billion yuan in 23 years, and investment income excluding one-time effects of 1,177 billion yuan, reversing the loss year on year; the Group's total return on investment was 1.9%, +2.9 pt year on year; net return on investment 2.2%, -1.0 pt year on year; 3) Exchange profit and loss improved.
Considering that the virtual banking and technology sectors have not yet achieved profits, the 2024-2026 EPS was reduced to 0.91 (1.07,-15.4%) /1.07 (1.27,-15.6%) /1.20 yuan. Taking into account that the profit progress of the virtual banking and technology sector was lower than expected, the target price was lowered to HK$29.88 per share.
Premium growth has been rapid, and underwriting profits have remained steady: 23 years of premium income of 29.501 billion yuan, or 24.7% year-on-year, with digital life and health being the main drivers of premiums. 1) Health and ecology premiums were 9.2% year-on-year, mainly brought about by a 23.6% increase in the number of paying users. The new premium contribution was 52%, +10pt year over year; the comprehensive underwriting cost ratio was 87.2%, -1.4pt year over year.
2) Digital lifestyle ecosystem premiums were 41.6% year-on-year, mainly contributed by e-commerce return insurance and air travel services, with year-on-year differences of 25.3% and 89.0%, respectively; the comprehensive underwriting cost ratio remained the same at 99.5% year-on-year.
3) Consumer finance ecosystem premiums were +22.5% year over year. Affected by the external environment, the comprehensive consumer finance compensation rate was +19.9pt to 68.4% year over year, but underwriting profit was still achieved throughout the year. The comprehensive underwriting cost ratio was 96.4%, +6.5 pt year over year. 4) Auto finance ecosystem premiums were +24.7%, with domestic car insurance premiums accounting for up to 94.5% and new energy vehicle premiums +196.1% year-on-year; the drastic reduction in the cost ratio led to a comprehensive underwriting cost ratio of -2.0pt to 97.4%.
Technology exports expanded rapidly, and virtual banks further reduced losses: 1) Technology export revenue in '23 was 829 million yuan, 40.0% over the same period. Among them, 101 new insurance industry chain customers were signed to help customers digitally transform; 12 new bank and brokerage customers were newly signed, providing general software solutions. 2) Zhongan Bank's net revenue of HK$366 million was 42.9% year-on-year. The net loss ratio narrowed by 85.6 pt to 109.1%, benefiting from an increase of 10 bps to 1.94% in the interest rate hike period.
Catalyst: Capital markets are picking up.
Risk warning: Long-term interest rates decline; exchange risk increases as the US dollar appreciates.