Incident: The company issued a premium income announcement for May 2024. In May, the company achieved premium income of 38.626 billion yuan, +4.4% year-on-year, including +4.4% for car insurance and +4.3% for non-car insurance.

Car insurance premiums were +4.4% year-on-year in May, mainly due to an improvement in average car premiums. In May, the company achieved car insurance premium income of 22.853 billion yuan, +4.4% over the same period last year. The growth rate of the company's car insurance premiums improved month-on-month (+3.5% in April), mainly due to improvements in average car premiums. However, looking at the whole year, benefiting from the trade-in policy, new car sales are expected to grow relatively well, thus driving the company's car insurance premiums to increase positively. We expect the company's car insurance premium growth rate to remain around 5%. As for car insurance COR, 2024Q2's car insurance COR is expected to remain at an excellent level. Since 2024Q2, as the impact of natural disasters wanes, the company's auto insurance payout rate is expected to be at a good level. The implementation of “integrated reporting” of car insurance is expected to drive a year-on-year improvement in car insurance cost rates. Looking at the annual level, as the company continues to optimize the car insurance business structure to drive improved payout rates, and regulation guides rational competition in auto insurance to drive cost rate improvements, we expect the company's car insurance COR to improve below 97% in 2024.

Non-car insurance premiums in May were +4.3% year-on-year, mainly due to liability insurance and eHealth Insurance driving the company to achieve non-car insurance premium income of 15.773 billion yuan in May, +4.3% year-on-year. In terms of insurance types, liability insurance and health insurance both achieved positive increases over the same period last year. Among them: (1) The company's liability insurance premium growth rate in May was +17.1% (-1.2% in April), which is mainly due to the lower base for the same period last year. (2) The premium growth rate of eHealth insurance in May was +5.5% (-6.1% in April), mainly due to the rapid year-on-year increase in personal health insurance, which led to a recovery in the overall eHealth insurance premium growth rate. Looking at the whole year, as China's economy continues to recover and policies to support financial insurance development continue to be strengthened, the company's non-car insurance business is expected to achieve large single-digit growth. For non-car insurance COR, as the enabling effects of the company's continuous optimization of the business structure and risk reduction services gradually become apparent, the company's non-car insurance payout rate is expected to improve year-on-year. In this context, we expect the company's non-car insurance COR to improve to around 99% in 2024.

Profit Forecasts, Valuations, and Ratings

As the company continues to focus on high-quality development, the company's COR is expected to continue to improve in 2024. Combined asset-side environmental improvements are expected to drive a year-on-year improvement in investment income, which in turn supports the growth of the company's net profit.

In this context, the company's ROE is expected to reach more than 12%. We expect the company's net profit to be 282/314/333 billion in 2024-2026, respectively, with 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.