1H24 net profit to mother was better than we expected

China People's Insurance announced 1H24 results: net profit to mother +13.7%, better than our expectations, mainly because life insurance profit was better than our expectations. Financial Insurance CoR was +0.4ppt to 96.2% year over year, which is basically in line with our expectations. The new life insurance/health insurance business value (NBV) under comparable caliber was +91.0/ 159.0% year over year, and the company announced an interim dividend of 0.63 yuan per 10 shares.

Development trends

Financial insurance underwriting has maintained an excellent level of profit under a high base. 1H24 China Financial Insurance Auto Insurance/Non-Auto Insurance COR was -0.3/+1.5ppt to 96.4/ 95.8%, respectively; although the growth rate of car insurance premiums was significantly lower than in the past, the company's car insurance business advantages were prominent, and we are optimistic about the profit level of the company's car insurance business; in terms of non-car business, agricultural insurance premiums were -7%, but profitability further improved; Yijian Insurance was affected by increased compensation standards, policies related to medical treatment in other places, and the increase in the share of commercial business; overall, we think COR was +1.4 to 99.9% year over year; overall, we think the profit level of the company's non-car insurance business is +1.4 ppt to 99.9% compared to the past; overall, we think the profit level of the company's non-car insurance business is +1.4 ppt to 99.9% profit Capabilities are still at an excellent level.

Human Insurance NBV and net profit both increased significantly year over year. The NBV of People's Insurance Life Insurance under the 1H24 comparable caliber increased by +91% year-on-year, mainly benefiting from a year-on-year increase of 11.3ppt to 19.9%. Among them, the new business value ratio of insurance and banking insurance channels was +6.4/+13.6ppt to 23.4/ 17.3% year over year, respectively, and the included value (EV) of human insurance life insurance increased 32.8% from the end of 2023. The net profit of 1H24 Life Insurance surged 191.1% year on year, mainly benefiting from the capital market being better than the same period last year, as well as improvements in debt costs driven by the company's cost reduction and efficiency and “integration of reporting and banking” policies.

People's health insurance has maintained a good trend, and NBV has increased dramatically. Under the 1H24 comparable caliber, Human Insurance Health NBV was +159% year-on-year. First-year premiums, annualized premiums, and new business value rates all increased. Among them, the new business value rate (annualized premium caliber) was +24.7ppt to 49.6% year-on-year, and the Human Insurance Health EV increased by 28.4% compared to the end of 2023. The net profit of 1H24 Health Insurance was +25.7% year-on-year, maintaining a steady growth trend.

Falling interest rates are putting pressure on investment returns. 1H24 China China Insurance's annualized net/total return on investment was -0.6/-0.8ppt to 3.8/ 4.1%, respectively. Against the backdrop of declining interest rates, the company's net return on investment was under pressure. Furthermore, the company recorded a profit and loss of -4.74 billion yuan on disposal of financial instruments, leading to a year-on-year decline in total return on investment.

Profit forecasting and valuation

We keep our profit forecast, industry rating and A/H target price of HK$6.9/3.59 unchanged, corresponding to 1.2/0.6x 2024e P/B. The company's A/H is currently trading at 1.0/0.4x 2024e P/B, respectively, and the potential upside for A/H is 20/ 30%, respectively.

risks

Natural disasters; increased competition in the auto insurance market; new premium growth falling short of expectations; sharp drop in long-term interest rates; large capital market fluctuations; policy and regulatory uncertainty.