2023 net profit is in line with our expectations
China People's Insurance announced its 2023 results: net profit under the new standard was -12% to 22.32 billion yuan, in line with our expectations; the comprehensive financial insurance cost ratio (CoR) was +1.2ppt to 97.8% year over year, better than our expectations, mainly due to the improvement in the competitive environment for car insurance. The new life insurance/health insurance business value (NBV, comparable caliber adjusted in 2022 retrospective assumptions) was +69.6%/+182.9%, respectively, better than our expectations.
Development trends
Financial insurance performance was steady and on schedule under market fluctuations. In 2023, the original insurance premiums for the company's financial insurance business were +6.3%, with auto insurance/non-car insurance premiums being +5.3%/7.4%, respectively, growing steadily; despite the low base of the epidemic and natural disasters, thanks to continuous optimization of the company's car insurance business structure and improvement in the quality and efficiency of non-car insurance operations, the annual CoR was +1.2ppt to 97.8% year-on-year, of which car insurance/non-car insurance was +2.4/-1.1ppt to 96.9%/99.1% year on year, with management giving the market less than 97%///100% Target guidance, and better than our previous expectations.
Life insurance and health insurance NBV (all described in this paragraph are comparable calibers adjusted under the 2022 retrospective assumption) have increased, and the quality of business is improving. Annual life insurance/health insurance NBV was +69.6%/+182.9% year-on-year. Among them, life insurance benefited from the boom in savings insurance, and health insurance was driven by the company's health ecosystem construction and value ratio boost. In terms of life insurance, the 13/25-month insurance policy continuation rate was +9.5/7.2ppt to 92.2%/80.3%, respectively, and the withdrawal rate was -1.4ppt to 5.1% year over year; personal business channel average monthly performance manpower ratio +8.9%, monthly first-year commission income per capita +60.5% year over year, highly educated manpower accounts for +1.7ppt year on year, business quality and team quality have improved under life insurance transformation; in terms of health insurance, value creation capacity has improved. The annual new business value rate (disclosed value) was +5ppt year over year, and short-term insurance CoR- compared to the same period 0.7 ppt
Considering the macroeconomic environment, the company lowered the return on investment and risk discount rate assuming 50/100 bps to 4.5%/9%. The impact of this assumption adjustment on (1) life insurance/health insurance 2022 NBV was -19.1%/-3.5%, respectively; (2) the impact of life insurance/health insurance EV in 2022 was -4%/-2%, respectively.
Investment performance was steady, and net profit performance was in line with expectations. Affected by capital market fluctuations, the company's net/total return on investment in 2023 (new standard caliber) was -0.6/-1.3ppt to 4.5%/3.3% year on year, and the total return on investment under the old standard caliber reached 4.1%, which is superior to the industry level. Net profit for the full year was -12%. The company declared a dividend of 0.156 yuan per share, corresponding dividend rate of +2.9ppt to 33% year over year. The current stock price corresponds to the Insurance-A/H dividend rate (2023a) of 3%/7%, respectively.
Profit forecasting and valuation
We maintain the company's 2024e/25e EPS at RMB 0.61/0.66 per share, and keep the Human Insurance - A/H outperforming industry rating and target price of RMB 6.90 /HK$3.59 unchanged. People's Insurance - A/H is currently trading at 0.9x/0.4x 2024e P/B respectively. The target price corresponds to 1.2x/0.5x 2024e/25e P/B, with room for increase of 31%/43% compared to the current stock price.
risks
Natural disasters; increased competition in the auto insurance market; new premium growth falling short of expectations; sharp drop in long-term interest rates; large capital market fluctuations; policy and regulatory uncertainty.