Incidents:

In 2023, Zhongan Online achieved operating income of 33.54 billion yuan, +44.2% year on year; insurance service revenue of 27.54 billion yuan, +24.1% year on year; net profit to mother of 4.08 billion yuan, turning loss into profit; underwriting profit (domestic) of 1.31 billion yuan, +1.7% year on year; the Group's net return on investment of 2.2%, -1.1 pct year on year, and total return on investment of 2.7%, +2.9 pct year on year.

Comment:

Investment income improved significantly, and net profit attributable to mother turned a loss into a profit. In 2023, the company achieved net profit of 4.08 billion yuan, turning a year-on-year loss into a profit (loss of 1.11 billion yuan in '22), of which 23H1/H2 earned 2.2/3.86 billion yuan respectively, mainly benefiting from significant improvements in investment income, year-on-year increase in underwriting profit, and confirmed one-time investment income of 3.78 billion yuan after switching from a subsidiary to a joint venture. Excluding the influence of Zhongan International, the company's net profit to mother in '23 was 290 million yuan. Let's take a closer look:

1) In 2023, the Group's net return on investment/total return on investment was 2.2%/2.7%, respectively, with year-on-year changes of -1.1 pct/+2.9 pct. Among them, the total investment income of the domestic insurance sector changed from loss to profit of 7.2 billion yuan (loss of 380 million yuan in '22), and the total return on investment increased 2.9 pct to 1.9% year over year, mainly benefiting from a recovery in equity investment.

2) Thanks to the company's technology-driven cost reduction and efficiency, the company's domestic financial insurance business achieved an underwriting profit of 1.31 billion yuan, +1.7% year over year. Of these, 23H1/H2 was +47.6%/-16.3%, respectively. The pressure in the second half of the year was mainly affected by increased payout rates in the consumer finance sector. The company's comprehensive cost ratio increased by 1.0 pct to 95.2% year over year, with the comprehensive payment/comprehensive cost ratio increasing by 0.1 pct/0.9 pct year over year to 56.8%/38.4%. By sector, the comprehensive cost rates for health/ digital lifestyle/ consumer finance/automotive ecology were 87.2%/99.5%/96.4%/95.4%, respectively, with year-on-year changes of -1.4 pct/flat /+6.5 pct/-2.0pct, respectively.

The four major sectors are working together to maintain a high increase in premiums. In 2023, the company achieved total premium revenue of 29.50 billion yuan, +24.7% year-on-year, of which 23H1/H2 was +37.5%/+14.5%, respectively. Let's look at it by section:

1) The health ecosystem continues to enrich the product matrix and improve service capabilities. In 23, it achieved premium income of 9.81 billion yuan, +9.2% year over year, and 23H1/H2 +15.9%/+3.0% year over year, respectively. Among them, critical illness insurance premiums increased sharply by 130.6% year on year to 1.34 billion yuan.

2) Using the advantages of technology and data analysis, the digital lifestyle ecosystem achieved premium income of 12.56 billion yuan in 23 years, or +41.6% year-on-year. Among them, 23H1/H2 was +52.8%/+33.1% year-on-year respectively, accounting for 42.6% of the 23-year premium ratio, and +5.1 pct year over year, making it the largest ecosystem. Specifically, the e-commerce sector's premium revenue was 6.59 billion yuan, +25.3%, which was 10.5pct narrower than in the first half of the year; the air travel sector's premium revenue was 3.24 billion yuan, +89.0% year-on-year, the increase was 29.1 pct narrower than in the first half of the year; premium revenue from the innovative business was 2.73 billion yuan, +43.8% year-on-year, and the increase was 4.1 pcts narrower than in the first half of the year, with pet insurance premiums of about 500 million yuan, up nearly 150% year on year (23H1 was 200 million yuan, up nearly 100% year on year).

3) The consumer finance ecosystem provides credit technology services to licensed financial institutions through Internet platforms such as LinkWing Pay and iQiyi, and achieved premium income of 5.55 billion yuan in 23, +22.5% year-on-year, of which 23H1/H2 was +52.0%/+2.5%, respectively; as of the end of 23, the insured loan balance was 27.09 billion yuan, +16.9% year-on-year.

4) The automobile ecosystem benefited from the recovery of the domestic passenger car market, achieving premium income of 1.58 billion yuan in 23, +24.7% year over year, and 23H1/H2 +54.3%/+3.2% year over year, respectively, of which NEV insurance premiums were +196.1%.

Proprietary channel premium share and user stickiness have increased. The company continues to make efforts to build cross-penetration between ecosystems, enrich the self-operated channel product matrix and upgrade healthcare, family, pet and other services, reaching users through more than 30 self-operated channels and social networking accounts. In 2023, the self-operated channel achieved premium income of 7.61 billion yuan, +31.0%, accounting for 25.8% of the total premium ratio, +1.3 pct year on year; the per capita premium of the self-operated channel was 670 yuan, -11.3%; the renewal rate increased by 3.3 pct to 88.3% year on year, and the stickiness of self-operated users increased by 3.3 pct to 88.3% year on year.

R&D investment declined year on year, and the increase in technology export revenue widened. The company continues to deploy in cutting-edge technology fields such as artificial intelligence, blockchain, cloud computing, and big data. The R&D investment in 2023 was 1.19 billion yuan, -11.4%, accounting for 4.0% of total premiums. At the same time, the company continued to develop domestic and foreign technology export business to help customers in various industries around the world digitally transform. In 23, the technology export business revenue reached 8.3 billion yuan, +40.0% over the same period last year, an increase of 18.0 pcts over the first half of the year.

Profit prediction and rating: Zhongan Online is the first Internet insurance technology company in China. It has long adhered to the technology empowerment strategy and is ecologically oriented. Through self-operated platforms and ecological partner platforms, it enters the user's Internet life scenario and provides innovative, inclusive and rich insurance products and services to meet the diverse protection needs of users. In 2023, Zhongan General Premium ranked 9th in China's financial insurance industry, further increasing its market share, making it the fastest growing company among the top ten financial insurance companies in China, and ranked first in the domestic Internet financial insurance market share of 24.4%. In the future, as R&D investment empowers the insurance value chain, the profit level is expected to increase further. Under the new accounting standards, we expect the company's 2024-2026 net profit to be 11/13/1.5 billion yuan respectively (not directly comparable to the previous forecast under the old accounting standards). The current stock price corresponds to the company's 24-26 PB of 0.81/0.78/0.74, respectively, maintaining a “buy” rating.

Risk warning: Economic recovery falls short of expectations; capital markets fluctuate greatly; premium income falls short of expectations.