1Q24 net profit was better than our expectations
China Taibao announced 1Q24 results: Life Insurance's New Business Value (NBV) +30.7% YoY, in line with our expectations; Financial Insurance Comprehensive Cost Ratio (CoR) -0.4ppt to 98.0% year over year, better than our expectations, mainly because the results of the company's refined financial insurance operations were better than our expectations. 1Q24 net profit was +1.1% year-on-year, which was significantly better than our expectations, mainly due to better investment performance than our expectations.
Development trends
Life insurance NBV has increased rapidly, and the quality of business continues to improve. With 1Q24's NBV +30.7% YoY (this growth rate takes into account the impact of hypothetical adjustments), we expect to be at the leading level in the industry. The quality of life insurance business continued to improve: (1) the production capacity of high-performing teams continued to increase, the monthly FYP per U workforce increased by 33.7% to 83,000 yuan, and the monthly FYC per U workforce was +14.1% to 9,313 yuan; (2) Business quality was further improved, and the 13-month/25-month insurance policy continuation rate for personal life insurance customers was +1.0pp/+7.3ppt to 96.9%/92.9%, respectively.
Financial insurance CoR bucked the trend and improved year over year. Despite being affected by the freezing rain disaster in the first quarter, thanks to the results of refined operations, 1Q24's overall, car insurance and non-car insurance premium income was +8.6%/+2.2%/+13.8%, respectively, and CoR -0.4ppt to 98.0% year over year, which was better than our previous expectations.
Net profit bucked the trend due to capital market fluctuations. Despite pressure from the asset side, the company's 1Q24 net profit was +1.1% year-on-year, shareholders' equity +3.3% month-on-month; 1Q24 net/total return on investment (unannualized) remained flat /-0.1ppt to 0.8%/1.3%, respectively. The flat return on net investment shows that the company has accumulated sufficient assets over a long period of time in history, and the word “steady” is highlighted.
If the waves run out, they'll get money. 1Q24 In the context of declining interest rates and declining stock market returns, Taibao Group's profits are still bucking the trend. We reaffirm that the market has amplified the asset-side pressure on high-quality life insurance companies. Companies with sufficient interest spreads in the stock business and have accumulated a large amount of long-term fixed income assets will perform significantly better than the more pessimistic market expectations under the current trend of accelerated table expansion. Judging from the return on net investment and the stability of net assets, we believe that Taibao's asset liability matching situation and management capabilities are relatively superior to those of its peers. This is due to the company's steady nature and long-term accumulation of long-term fixed income assets. The company is more stable The key to crossing the cycle; at the same time, we are optimistic about the improvement in operating capacity brought about by Taibao's past life insurance reforms. We expect that the company's debt-side performance will continue to lead the industry, and we reaffirm that Taibao is the first bidder in the insurance sector.
Profit forecasting and valuation
As capital market performance was better than our previous expectations, we raised 24e/25e EPS by 5.8%/10.5% to 4.1 yuan/4.4 yuan/share. The current A/H stock price corresponds to 0.4x/0.3x 24ep/eV. We maintain Taibao-A/H's outperforming industry rating and target price of HK$38.3/HK$22.7. The target price corresponds to 0.7x/0.3x24EP/EV, with 51%/32% upside compared to the current stock price.
risks
The increase in premiums for new orders fell short of expectations; long-term interest rates fell sharply; capital markets fluctuated greatly; and policy and regulatory uncertainty.