Incident: The company disclosed its 2023 results, turning a loss into a profit in line with expectations. In '23, the company's COR was 95.2%/yoy+1pct, achieving income from insurance services of 275 billion yuan/yoy +24.2%, and net profit of 4.1 billion yuan. After the adjustment excludes one-time investment income brought by Zhongan International (since August 23, Zhongan International was no longer incorporated into a joint venture), the net profit to mother was 294 million yuan, turning a year-on-year loss into profit.
The company's net assets at the end of the year were 201 billion yuan, a net increase of 4.3 billion yuan over the previous year. The current static PB is 0.84x.
The four major ecological premiums are growing rapidly. ① Health Ecology achieved a total premium of 9.8 billion yuan/yoy +9.2% in 23 years, with new premiums contributing 52%/yoy+10pct, including critical illness insurance 1.3 billion yuan/yoy +131%, outpatient emergency insurance 300 million yuan/yoy +157%, and one million medical insurance 6.5 billion yuan/yoy +14%.
② The digital lifestyle ecosystem achieved a total premium of 12.6 billion yuan/yoy +42% in 23 years, including e-commerce business premiums of 6.6 billion yuan/yoy +25%, air travel business 3.2 billion yuan/yoy +89%, and innovative business 2.7 billion yuan/yoy +44%. ③ The consumer finance ecosystem has achieved premiums of 5.6 billion yuan/yoy +22.5% in 23 years, an average term of 10 months for underlying assets, and an average loan of 6,500 yuan. It focuses on the Internet scenario in small amounts to distribute high-quality customers, and the risk is manageable. ④ The automobile ecosystem achieved premiums of 1.6 billion yuan/yoy +24.7% in 23 years, of which domestic cars accounted for 94.5% of premiums, and YOY +196% of premiums for NEV insurance.
The construction of self-operated channels has been strengthened, and the cost rate has improved year-on-year. Starting from the scenario, the company focused on self-operated channel construction. The total premium for self-operated channels was 7.6 billion yuan/yoy +31% in 23 years. COR aspect: In 23, the company's COR was 95.2%/yoy+1pct, health/digital lifestyle/consumer finance/automobile ecology was 87.2%/99.5%/96.4%/95.4%, respectively, -1.4pct/ flat/+6.5pct/ -2pct; the cost rates were 53%/33.6%/28%/30.3%, respectively, +13.4pct/ -13.4pct/ -7.5pct. The slight increase in COR in 23 was mainly due to the impact of the 3Q23 disaster. The company's COR has shown a downward trend in recent years, and it is expected to maintain a steady decline after the disaster risk is cleared.
Total revenue from technology exports has increased dramatically. In '23, the company's total technology export revenue was 830 million yuan/yoy +40%, and its domestic technology export revenue in China was 500 million yuan/yoy +73.2%; international technology export revenue was 330 million yuan/yoy +8%, and gross margin increased by 6pct to 46%.
Virtual banking business indicators are improving across the board. The banking business achieved deposit balance of HK$11.7 billion /yoy +27.5%, fund AUM of HK$1 billion /yoy +755%, net income of HK$366 million/yoy +42.9%, net interest spread 1.94%/yoy+10bps. The banking business focused on business quality and continued improvement in operating efficiency. Net loss decreased by 140 million yuan year-on-year in 23, and the net loss ratio continued to narrow by 85.6 pcts. It is expected that the virtual banking business will gradually reduce losses.
The share of fixed income in the investment business increased, and the total return on investment improved. In '23, the company's total domestic investment was 38.2 billion yuan/yoy +4.6%, fixed income assets accounted for 75.3% /yoy+7.7pct, and the total share base accounted for 6.7% /yoy-4.1pct. The company's total/net return on investment in '23 was 1.9%/2.2%, +2.9pct/-1pct year-on-year, respectively.
Investment advice: Maintain the company's “Highly Recommended” rating. Debt side: Continued economic recovery is driving a recovery in consumption combined with rising residents' awareness of health management. The company seizes innovative opportunities, digs deep into customer needs, and actively carries out product innovation and R&D. The growth rate of the four major ecological businesses is expected to continue, and the technology business and banking business continue to improve, which is expected to reverse losses. Asset side: The scale of investment has grown steadily, the share of fixed income assets has increased, and attention to the allocation of high-interest stocks has been strengthened. It is expected that it will continue to improve in the future as the market recovers. Net profit for 24-26 is expected to be 6.0, 7.1, and 80 million yuan, respectively, with year-on-year growth rates of +105% (net profit of 294 million yuan after deducting the influence of Zhongan International), +18.6%, and +12%; COR 94.7%, 94.3%, and 94% year-on-year, respectively, -0.5 pct, -0.4 pct, and -0.3 pct, respectively. The current closing price corresponds to 24E-26E dynamic P/E of 3.9 times, 3.5 times, and 3.2 times, respectively.
Risk warning: 1) Policy implementation falls short of expectations; 2) Sudden catastrophe; 3) equity market fluctuations and credit risk exposure.