Profits increased slightly, and insurance service performance increased steadily
China Taibao announced 1Q24 results on April 26, EPS RMB1.22, which is basically the same as the same period last year (RMB1.21). According to our calculations, insurance service performance increased 3% year on year, reflecting a stable profit situation in life insurance underwriting; investment performance fell 22% year on year. This may be due to weak capital market performance in the first quarter of this year compared to the same period last year. The return on total non-annualized investment in 1Q24 was 1.3%, slightly lower than 1.4% in the same period last year. The reduction in tax costs ultimately stabilized net profit year over year. We believe that starting from the second quarter, the profit base declined rapidly, and the pressure on profit growth declined. Considering the performance of the investment market, we adjusted the 2024-2026 EPS to RMB3.08/3.39/3.52 (previous value: RMB3.13/3.43/3.61), maintain the target price of RMB35 (A) /HKD25 (H), and maintain the “buy” rating.
Life insurance NBV is growing strongly
The value of new life insurance business (NBV) increased by 30.7% compared to the same period last year. If we consider the impact of the revised downsizing on the base due to the adjustment of actuarial assumptions at the end of last year, we estimate that the year-on-year growth rate may exceed 40% under a comparable scale, which is relatively fast. We believe that in an environment of low interest rates, consumer demand for safer financial products (such as insurance) is rising. The premiums for the new 1Q24 policy remained roughly flat year over year (0.4% yoy), indicating that improved profit margins were the main driver of NBV's growth. We believe that lower pricing rates, product structure improvements, and cost reductions may be the main reasons for the increase in profit margins. In an environment where interest rates are declining, improving profit margins is an important means of resisting the risk of interest spreads and losses. We expect China Taibao to achieve positive NBV growth in the first half of the year, and expect a 12% increase in NBV for the whole year.
The performance of industrial insurance underwriting is stable
The comprehensive cost rate for property insurance was 98% in 1Q24, an improvement from 98.4% in the same period last year, reflecting a steady improvement in underwriting quality. In the first quarter, car insurance premiums increased 2% year on year, accounting for 42% of total property insurance premiums (45% in the same period last year); non-car insurance premiums increased 14% year on year, significantly faster than car insurance.
The 2023 data shows that health insurance, agricultural insurance, and liability insurance are growing rapidly. As a mature product, car insurance has entered a period of low growth. We expect non-car insurance to be the main driving force for premium growth in the future. In 2023, Taibao Industrial Insurance's auto insurance (97.7%) and non-auto insurance (97.6%) had comparable underwriting performance. We expect the COR for Taibao Insurance to be 97.6% in 2024.
Good return on capital
China Taibao's operating profit growth rate in recent years fell from 11.7% in 2020 to -0.4% in 2023, mainly due to a slowdown in the growth rate of new life insurance businesses. The operating ROE is generally maintained at a good level of 15% or more. As life insurance resumes growth, we expect operating profit to increase 4% in 2024, which is expected to support continued dividend growth.
Risk warning: The growth rate of life insurance NBV deteriorated sharply, property insurance COR deteriorated sharply, and investment suffered significant losses.