Incident: Sunshine Insurance released its 2023 annual report, with total premium revenue of 118.91 billion yuan, +9.3% year over year; insurance service revenue of 59.09 billion yuan, +7.5% year over year; net profit to mother of 3.74 billion yuan, -16.8% year on year; EV (embedded value) of 104.06 billion yuan, +6.4% year on year on a comparable scale. The 2023 cash dividend remained unchanged at 0.18 yuan/share, and the dividend payment rate reached 55.4%.

Life insurance NBV has increased, and manpower and business quality have improved. During the reporting period, life insurance achieved total premium income of 74.60 billion yuan, +9.2% year on year; of this, new single premium income was 18.10 billion yuan, +22.7% year over year; NBV was 3.6 billion yuan, +44.2% year on year under comparable caliber. NBVM was estimated at 10.8%, +3.6 pct year over year. Channel side: Premium income from new individual insurance policies was 4.87 billion yuan, +37.2% year over year, with instalment payment of 4.30 billion yuan, +46.5% year on year; premium income of new bank insurance policy was 25.40 billion yuan, -10.4% year on year, of which instalments/annuations were 132.9/12.11 billion yuan, +17.5%/-29.0% year over year. Manpower side: Average monthly manpower ratio of personal insurance agents -15.5% to 53,000, per capita production capacity +44.4% to 21,000 yuan, and the number of people meeting the MDRT standard +84.7% to 519 people; the average production capacity of banking insurance networks was +32.6% to 87,000 yuan, and the average production capacity of banking insurance teams was +37.3% to 165,000 yuan. The company continued to have a year-on-year continuation rate of +3.4pct/+8.1pct to 93.9%/86.6% in April/25, and business quality continued to be optimized.

Financial insurance business structure has been optimized, and profit levels have been raised. During the reporting period, financial insurance achieved original insurance premium income of 44.24 billion yuan, +9.6%; the financial insurance product structure was continuously optimized, and the original insurance premium income of car insurance/non-car insurance was 261.4/18.10 billion yuan, +6.1%/+14.9%. Among them, the original insurance premium income of guaranteed insurance was -25.8% to 4.32 billion yuan, and the scale of the guarantee insurance business continued to shrink. The drop in cost pressure led to an increase in financial insurance profit levels. The comprehensive financial insurance expense ratio was -2.0pct to 33.7% year over year, the comprehensive compensation rate was +1.3pct to 65.0%, the comprehensive cost ratio was -0.7% to 98.7% year over year, and underwriting profit was +142.4% year over year to 572 million yuan.

Increase bond investment allocation and increase return on investment. As of the end of the reporting period, the company's investment assets were +15.5% YoY to 479.75 billion yuan, of which bond investment was +35.9% YoY to 249.28 billion yuan, accounting for +7.8pct to 52.0% of total investment assets, and -6.2% YoY to 57.57 billion yuan, accounting for -2.8pct to 12.0% of total invested assets. The net/comprehensive return on investment rebounded, and the return on total investment declined. The net/total/comprehensive return on investment was 4.0%/3.3%/3.8%, +0.1pct/-1.6pct/+2.0pct year-on-year.

The risk discount rate and long-term return on investment assume a reasonable reduction. The risk discount rate assumption was reduced from 11.0% to 9.5%, and the long-term return on investment assumption was reduced from 5.0% to 4.5%. As of the end of the reporting period, the company's EV was 104.06 billion yuan, +2.7% year over year, and +6.4% year over year; during the reporting period, life insurance NBV was 3.60 billion yuan, +19.2% year over year, and +44.2% year over year under the stated caliber, of which the individual insurance/banking insurance ratio was +19.1%/+52.4%.

Investment advice: The company actively promotes strategic upgrading, continues to improve its business quality, optimizes the life insurance structure to enhance value creation capabilities, reduces financial insurance costs and increases profit levels significantly. We are optimistic about the continued release of the company's growth momentum. In 2024-2026, the company's total revenue is expected to be +8.41%, +6.59%, +6.84%, net profit to mother +11.35%, +11.30%, +13.41%, EPS is 0.36, 0.40, 0.46 yuan, and PE corresponding to the closing price on April 9 is 7.07x, 6.35x, and 5.60x. The first coverage gives a “buy” rating.

Risk warning: macroeconomic recovery falls short of expectations, sharp capital market fluctuations, policy progress falls short of expectations