[Incident] China Financial Insurance announced results for the first quarter of 2024:1) Net profit of 5.87 billion yuan, or -38.3% year-on-year, mainly under pressure from the underwriting side and the investment side. 2) Net assets of 239.2 billion yuan, +3.8% compared to the beginning of the year.

Industrial insurance: Natural disasters and other factors have led to a year-on-year increase in the comprehensive cost rate. 1) The total premium income of Q1 industrial insurance reached 174 billion yuan, +3.8% year-on-year. Among them, car insurance and non-car insurance were +1.9% and +5.0%, respectively. Apart from credit guarantee insurance, all other types of insurance increased positively year over year. 2) The comprehensive cost rate was 97.9%, +2.2 pct compared to the previous year, mainly affected by disasters such as low temperatures, rain, snow and freezing, and increased traffic travel. We believe that as the company continues to reduce costs and increase efficiency, and continuously improves risk identification and prevention and control capabilities, the comprehensive cost ratio is expected to remain at a good level in the future.

Investment: Short-term pressure due to capital market fluctuations. 1) Affected by capital market fluctuations, the company's total investment income (interest income+investment income+fair value change profit and loss) was -36.4% year-on-year, of which investment income was -35.7% year-on-year, and fair value change income fell to -160 million yuan from 1.22 billion yuan in the same period in 2023. 2) The impact of falling interest rates and weakening of the stock market on the company's investment income is complex. On the one hand, the return on equity investment declined, and on the other hand, the decline in interest rates led to an increase in the book value of FVTPL bonds. Under the hedging influence of the two, the company's total return on investment without annualization in 24Q1 was 0.8%.

Optimistic about the competitive advantage of the company's financial insurance business and maintain a “superior to the market” rating. People's Insurance's car insurance business is in good condition. In the car insurance business, home-owned cars with low payout rates account for a relatively high share, and channel rates are manageable. Therefore, we believe that the company's profit margin far exceeds that of small and medium-sized insurers, and its competitive advantage will become more prominent in the second half of the comprehensive auto insurance reform. The company's current stock price is 0.82 times 20234 PB, which is undervalued. Referring to comparable company valuations, we gave 0.95-1.0 times 2024E PB, and the corresponding reasonable value range was RMB 10.55-11.11. Based on the exchange rate of RMB: HKD = 1:1.1017, the equivalent reasonable value range was HK$11.63-12.24, maintaining the “superior to market” rating.

Risk warning: 1) The industry's premium growth rate is lower than expected; 2) Commercial vehicle fee reform continues to put pressure on industry underwriting profits.