Incidents:
The company released its 2024 quarterly report. Under the new standards, the company achieved net profit of 5.871 billion yuan, or -38.3% year-on-year. The company's overall COR was 97.9%, +2.2PCT year over year.
Increased COR led to year-over-year decline in underwriting profit
1) 2024Q1 achieved original insurance premium revenue of 173.97 billion yuan, +3.8% YoY, of which car insurance premiums were +1.9% YoY and non-car insurance premiums were +5.0% YoY. The company's premium growth rate is slightly behind the industry (+5.1%), and the pace of bidding for government projects, mainly agricultural insurance, has been delayed. Looking ahead to the whole year, as China's economy continues to recover and seasonal factors are eliminated, the company's premium income is still expected to achieve large single-digit growth.
2) 2024Q1's overall COR was 97.9%, up 2.2 PCT year on year, mainly due to the increase in payout rates due to the increased impact of natural disasters and the resumption of automobile travel. In this context, the company's underwriting profit was -48.3% YoY to $2,391 million. Looking ahead, in the context of car insurance “integration of reporting” to improve cost rates and the company strengthens risk management and controls to keep payout rates stable, the company's COR is expected to continue to improve throughout the year, achieving the “guideline that the COR for car insurance is around 97%, and the COR for non-car insurance is < 100%.”
The year-on-year decline in investment income dragged down net profit performance
1) Under the new standards, 2024Q1 achieved net profit of 5.871 billion yuan, or -38.3% year-on-year, mainly due to a year-on-year decline in underwriting profit and investment income.
2) The 2024Q1 company's annualized return on total investment is 3.2%. The company achieved a total investment income of 4.892 billion yuan (estimated value), or -34.7% year-on-year, mainly due to capital market fluctuations, which led to a year-on-year decline in equity investment income. 2024Q1's fair value change gain/loss was -164 million, a major drag on investment income (2023Q1 was +1,225 million).
3) 2024Q1's simple annualized ROE is 10%, which is still at a good level.
Profit Forecasts, Valuations, and Ratings
Considering: 1) The company's underwriting profitability is at the leading level in the industry, and COR is expected to remain at a good level in 2024. 2) The recovery in the capital market is expected to drive a year-on-year improvement in investment income, which in turn supports the growth of net profit. We expect the company's net profit to be 282/314/333 billion in 2024-2026, with corresponding growth rates of 15%/11%/6%, respectively. Due to the company's scarce business model and high ROE, we have given a target price of HK$13.0, maintaining a “buy” rating.
Risk warning: Market competition has intensified, natural disasters have exceeded expectations, and the capital market has fluctuated greatly.