Incidents:

In 2023, under the old accounting standards, China Life Insurance's operating income was 837.86 billion yuan, +1.4% year on year; net profit to mother was 21.11 billion, year on year -34.2%; weighted average return on net assets 4.7%, -2.3 pct year on year; new business value of 36.86 billion yuan, +11.9% year over year; included value of 1.26 trillion yuan, +5.6% compared to the beginning of the year; net return on investment 3.8%, year-on-year -0.2 pct; comprehensive return on investment 3.2%, yoy + 1.3 pct; dividend of 0.43 yuan per share, -12.2% YoY.

Comment:

Affected by capital market fluctuations, the profit growth rate for the whole year was under pressure, but the decline improved month-on-month. In 2023, 1) Under the old standards, the company achieved net profit of 21.11 billion yuan, or -34.2% year-on-year, mainly affected by a decline in investment income and an increase in asset impairment losses, but the decline was 13.6 pcts narrower than in the previous three quarters, with a sharp increase of 363.7% year-on-year to 4.90 billion yuan in the fourth quarter. 2) Under the new guidelines, the company's net profit to mother was 46.18 billion yuan, -30.7% year-on-year. The decline was 5.2 pcts narrower than in the previous three quarters, with a year-on-year decline of 4.7% to 10.64 billion yuan in the fourth quarter.

The manpower scale was the first to stabilize, and the team quality was continuously optimized. The company's individual insurance sector adheres to the “effective team drives business development” strategy and continues to strengthen the sales force. By the end of '23, the total sales force was 694,000, -4.8% compared to the beginning of the year; of these, the personal insurance sales force was 634,000, -5.1% from the beginning of the year, and -3.9% from the end of 23Q3, and the team size stabilized first in the industry. At the same time, the quality of the company's team continued to be optimized, and team production capacity increased steadily. The number of new recruits increased in 23 years was +13.6%, and the proportion of first-year monthly premiums per person was +28.6% year over year, the same increase as in the previous three quarters; the 14-month/26-month policy continuation rate increased by 7.4 pct/4.9pct year on year to 90.4%/79.1%, respectively.

With equal emphasis on scale and value, NBV has maintained a relatively rapid growth rate. 1) In 2023, the company's new premium revenue was $21.81 billion, +14.1% year-on-year. The increase was slightly narrower by 0.7 pct compared to the previous three quarters. It was mainly affected by the shift in predetermined interest rates and strict supervision of “integrated reporting and banking” of banking insurance channels. Specifically, in '23, the company's first-year premiums were $112.57 billion, up 0.8 pct from the previous three quarters. Among them, first-year premiums of 10 years or more increased 18.4% year-on-year to 49.52 billion yuan, accounting for 44.0% of first-year premiums, up 0.6 pct year over year, up 1.9 pcts from the previous three quarters, and the business term structure was further optimized. By channel, first-year premiums in the insurance sector increased 12.6% year-on-year to 91.81 billion yuan in '23, an increase of 3.5 pcts narrower than in the first half of the year; first-year premiums in the banking insurance channel increased 39.4% year over year to 20.74 billion yuan, and the increase was 19.8 pcts narrower than in the first half of the year.

2) Actuarial assumptions adjusted NBV +11.9% YoY. In 2023, the company lowered its long-term return on investment/risk discount rate by 50 bp/200bp to 4.5%/8%, assuming that the adjusted 23 year value of the company's included value/new business value fell 2.5%/10.2% from before the adjustment, of which the new business value was 36.86 billion, +11.9% year on year; the new business value in the individual insurance sector was 34.65 billion, +10.4% year on year; NBVM (first year premium caliber) was 29.9%, +2.5pct year on year; new business value in the diversified sector was 2.21 billion, year-on-year + 42.0% Judging from the old assumptions, the value of the company's new business in '23 was 41.04 billion, +14.0% year-on-year. The increase was the same as in the previous three quarters, mainly benefiting from the improvement in the business term structure and the release of continued strong demand for savings insurance.

Total return on investment fell 1.3 pct year over year to 2.7%. In 2023, the company's net return on investment/return on investment fell 0.2 pct/1.3 pct to 3.8%/2.7% year on year, respectively, due to fluctuations in long-term interest rates and continued shocks in the stock market. If the impact of changes in the fair value of marketable financial assets included in other comprehensive income in the current period, the company's comprehensive return on investment increased 1.3 pct to 3.2% year on year.

Profit prediction and rating: As a leader in the life insurance industry, the company adheres to the strategic strength of “steady growth, value, excellent structure, strong team, reform, and risk prevention”, and comprehensively promotes a series of reforms including the “eight major projects”. Among them, the results of the marketing system reform are beginning to show. At the same time, the company is speeding up the construction of a healthy pension ecosystem and creating a development model with “central urban” institutional pension as the main focus and “suburban” institutional pension, home pension, and community pension, and sales momentum will continue to improve. In the current context of declining competition yields and residents' demand for savings continuing to be high, value is expected to continue to be released as the results of the company's reforms continue to show. Considering the impact of capital market fluctuations on the investment side of the company, we lowered the company's 2024-2025 net profit forecast of 24.4%/22.6% to 278/33.4 billion, adding a 2026 forecast of 35.4 billion yuan. The current A/H stock price corresponds to the company's 24-year PEV of 0.61/0.19, respectively, maintaining the “buy” rating for A/H shares.

Risk warning: Premium income falls short of expectations; equity markets fluctuate sharply; interest rates fall beyond expectations.