Key points of investment:
[Event] China Financial Insurance Announces 2023 Annual Results: 1) Net profit to mother was 24.6 billion yuan, -15.7% year-on-year, and net profit to mother in the second half of the year was 4.3 billion yuan, or -56.5% year-on-year. ROE was 10.8%. 2) Net assets to mother were 231.4 billion yuan, +5.8% compared to the beginning of the year and +1.6% compared to the middle of the year.
The level of dividends has been rising steadily. The company plans to pay a dividend of 0.489 yuan per share in 2023, +2.3% year over year, corresponding dividend rate of 44.2%, an increase of 4 pcts over the previous year. The dividend rate corresponding to the company's closing price on March 29 was 5.2%.
Premium: The auto insurance business structure continues to be optimized, and non-car insurance continues to grow rapidly. 1) The total premium income of industrial insurance was 515.8 billion yuan, +6.3% year over year, and the market share was -0.2 pct to 32.5% year over year. 2) Car insurance premiums were +5.3% year over year, and car insurance renewal rate increased by 1.5pct year over year. The home-owned car business continued to improve, with the number of underwritten vehicles increasing by 6.9% year on year. Among them, the number of new vehicles covered was +6.0% year over year, and the renewal rate was +1.1 pct year over year. ② Non-car insurance premiums were +7.4% year-on-year, of which agricultural insurance maintained a high growth rate, +11.9% year-on-year.
Profit: Underwriting profit has declined, but the overall cost ratio is still superior to the industry. 1) Comprehensive cost ratio of 97.8%, +1.2pct year on year; underwriting profit of 10.2 billion yuan, -29.1% year over year. The comprehensive cost rate for car insurance was +2.4 pct year over year, while non-car insurance was -1.1 pct year over year. Among them, agricultural insurance/ health insurance/ liability insurance/ enterprise financial insurance were +1.4/-2.8/-2.1/-0.4 pct, respectively. 2) Payout rate +1.2pct to 70.6% year over year. ① Due to the resumption of social transportation and travel after the epidemic, the insurance rate increased. Coupled with the impact of major disasters such as typhoons and torrential rains, the car insurance compensation rate was +2.1 pct compared to the previous year.
② Due to factors such as the recovery in demand for medical treatment after the epidemic and the deepening of direct settlement policies for medical treatment from other places across provinces, the payout rate of Yijian Insurance was +1.8 pct compared to the previous year. ③ Due to the impact of disasters such as typhoons and torrential rain, agricultural insurance and corporate financial insurance payout rates were +2.2 pct and +0.3 pct, respectively. 3) The cost rate was 27.2%, the same as the previous year. ① Through effective cost control, the cost rates for agricultural insurance, health insurance, and corporate financial insurance were -0.8 pct, -4.6 pct, and -0.7 pct, respectively. ② Due to factors such as amortization of the costs obtained by the insurance policy under the new insurance contract guidelines, the car insurance cost rate was +0.3 pct compared to the same period.
Investments: Reduce the allocation of time deposits and stocks, increase the allocation of funds and perpetual bonds. 1) Investment assets were +4.3% to 60.7 billion yuan, with cash/ fixed income/equity assets accounting for 2.7%/58.2%/26.4%, and -1.0pct/-1.3pct/+2.0pct, respectively. Among them, time deposits and stock assets accounted for -3.4 pct and -0.8 pct, respectively, while the share of bonds, funds and perpetual bonds was +0.2 pct, +0.7 pct, and +2.2 pct, respectively. 2) Total return on investment of 3.5%, -0.3 pct year over year.
The dominant position in the industrial insurance market is stable and the dividend rate is high, giving it a “superior to the market” rating. People's Insurance's car insurance business is in good condition. In the car insurance business, home-owned cars with low payout rates account for a relatively high share, and channel rates are manageable. Therefore, we believe that the company's profit margin far exceeds that of small and medium-sized insurers, and its competitive advantage will become more prominent in the second half of the comprehensive auto insurance reform. China Financial Insurance's current stock price is only 0.84 times the 2024E PB, and the valuation is low. Referring to comparable company valuations, we gave 0.95-1.0 times 2024E PB, with a corresponding reasonable value range of RMB 10.63-11.19. Based on the exchange rate of RMB: HKD = 1:1.103 0, the equivalent reasonable value range is HK$11.73-12.34, maintaining the “superior to the market” rating.
Risk warning: 1) The industry's premium growth rate is lower than expected; 2) Commercial vehicle fee reform continues to put pressure on industry underwriting profits.