The company's recent situation
We believe that the company's underwriting profit trend is becoming more clear and that the technology business has more room for imagination, but the current valuation level does not reflect potential trends, so it is recommended to focus on related investment opportunities.
reviews
The development trend on the underwriting side is becoming more and more clear, and we are optimistic about continued steady profits in the future. Security revenue in 2023 was +24.7% to 29.5 billion yuan, of which the health/digital life/consumer finance/automobile ecosystem was +9.2%/41.6%/22.5%/24.7%, respectively. Digital life is growing rapidly, driven by businesses such as Doukuei Insurance and air travel. We expect the company's premiums to maintain a 15% + growth rate in 2024; CoR is +1.0ppt to 95.2% year-on-year, with underwriting profit for three consecutive years. Among them, health/digital lifestyle/consumer finance/automotive ecology were -1.4/flat /+6.5, respectively. /-2.0ppt to 87.2%/99.5%/96.4%/95.4%, the consumer finance business is affected by macroeconomic fluctuations, and the payout rate is +19.9ppt year over year. We expect the company to maintain a prudent business strategy to guarantee healthy consumer profits; the premium scale of the proprietary channel is +31% year-on-year, accounting for +1.2ppt to 25.8% of the total premium ratio, and the renewal rate is +3.3ppt to 88.3% year over year. Overall, we think the development trend of Zhongan's insurance side is becoming more clear, and we are optimistic that it will continue to be steady and profitable in the future.
Technology exports are growing rapidly, and Zhongan Bank's loss ratio has narrowed. In 2023, the company's total technology export revenue was +40% year-on-year to 829 million yuan. Its domestic and international technology export revenue reached 504/325 million yuan respectively, +73%/+8%; in 2023, there were 12 new domestic bank and brokerage customers; international business accounted for 51% of sustainable revenue, and gross margin +6ppt to 46% year-on-year. While Zhongan Bank's revenue grew rapidly, it continued to reduce losses. Net revenue was +42.9% year-on-year to HK$366 million. The loss ratio narrowed to 85.6ppt. The company maintained 4Q24 technology business profit conversion guidelines, and Zhongan Bank will launch various innovative financial services such as virtual asset transactions. We expect Zhongan Technology business to have a lot of room for imagination.
Total return on investment recovered, and net profit turned a year-on-year loss into a profit after excluding the one-time impact. In 2023, the company's net/total return on investment was -1.0/+2.9ppt to 2.2%/1.9%, respectively. Total investment income changed from a loss of -380 million yuan in 2022 to a profit of 720 million yuan. Net profit after excluding the one-time impact of Zhongan International's investment income reached 294 million yuan, turning a loss into a profit from the previous year.
Profit forecasting and valuation
In view of capital market fluctuations, we lowered the company's 24e EPS by 12% to 1.03 yuan per share, and introduced 25e EPS to 1.25 yuan per share for the first time. Due to the change in the new accounting standards, we revised the SOTP valuation method in accordance with the company's adjustments to the disclosure, and the target price was reduced by 24% to HK$22. The company is currently trading at 0.8x/0.7x 24e/25e P/B, and the target price corresponds to 1.3x/1.2x 24e/25e P/B, with 62% room for growth compared to the current stock price. Maintain an outperforming industry rating.
risks
The growth rate of health insurance is slowing down; the credit insurance business is at great risk; competition in the Internet insurance market is intensifying.