Key points of investment:

[Incident] China Life Insurance released its 2024 mid-year report: 1) Net profit to mother was 38.3 billion yuan, +10.6% year over year; Q2 was 17.6 billion yuan in a single quarter, +48.9% year over year. ROE was 7.79%, -1.77pct year over year. 2) Net assets to mother were 493.8 billion yuan, +2.8% compared to the end of Q1. 3) EV 1.4 trillion yuan, +11.4% compared to the beginning of the year. 4) The initial interim dividend was 0.2 yuan per share, and the total dividend was 5.653 billion yuan, accounting for 14.8% of net profit attributable to mother.

Premium: The premium term structure continues to be optimized, and individual insurance term payments are growing steadily. 1) The structure of new orders has been improved, and the proportion of ten-year or more orders has increased. In the first half of the year, premiums for new policies were -6.4%, first-year premiums were -0.1% year-on-year; premiums paid for ten-year terms and above were +9.4% year-on-year, increasing the proportion by 3.8 pcts to 43.8%. 2) New orders from individual insurance channels have maintained steady growth. In the first half of the year, premiums for new insurance channels were +5.2% year-on-year, and premiums paid for the first year were +5.6%. Of these, premiums for 10 years or more were +9.4% year-on-year. 3) New banking insurance policies are under pressure in the short term. The premium for the new bank insurance policy was -53.3%, and the first-year premium was -26.7% year-on-year. We believe that the company's banking insurance channel department strictly implements the requirements of the “integration of reporting and banking” policy, strengthens the control of commission fees, and may maintain equal emphasis on scale and value in the future.

NBV: Increased value ratios drive rapid growth in NBV. 1) NBV was 32.3 billion yuan in the first half of the year, +18.6% year-on-year.

Among the insurance channels, NBV was +14.6% year over year, and banking insurance and other channels were +80.6% year over year, accounting for +3.2pct to 9.2% year over year. 2) The NBV margin for individual insurance channels is 30.6%, +5.4pct year over year; banking insurance channels are +13.4pct year over year (incomparable caliber), which is expected to be mainly driven by factors such as lower predetermined interest rates and product structure optimization. 3) By strengthening long-term debt management and implementing cost reduction and efficiency, NBV's sensitivity to return on investment and expense ratio decreased in the first half of the year. With return on investment reduced by 10% and cost ratio increased by 10%, NBV declined by 22% and 7%, respectively, and the decline narrowed by 3 pct and 1 pct year-on-year. 4) The margin of contract service was +0.6% compared to the beginning of the year.

Manpower: The scale has steadily rebounded, and the quality of the team and production capacity are improving. 1) The number of individual insurers recovered steadily. At the end of 2023, 2024Q1 and 2024H1 had 0.634 million, 0.622 million, and 0.629 million people, respectively, -0.8% from the beginning of the year and +1.1% at the end of Q1. Among them, the marketing and exhibition teams were 0.401 million and 0.228 million people, respectively. 2) The team structure was continuously optimized, and the number of new recruits increased was +20.1% year-on-year, and the proportion of sales staff with excellent performance was +1.9pct year-on-year. 3) The production capacity of the sales team increased steadily, and first-year premiums per agent per month increased by 12.4% year-on-year.

Investment: Increased allocation of bonds, funds, and reduced stock allocations; total return on investment increased year-on-year. 1) Investment assets reached 6.1 trillion yuan, +12.5% compared to the beginning of the year. Bonds/stocks/funds accounted for 57.4%/7.3%/4.5% respectively, compared to +3.3pct, -0.7pct, and +0.7pct at the beginning of the year. OCI accounted for 7.7% of stocks, +4.3pct compared to the beginning of the year (H share caliber).

2) The annualized net return on investment was 3.03%, -0.7pct year on year; the total return on investment was 3.59%, +0.25pct year on year.

Due to the effect of the switching of guidelines, the above changes are not entirely comparable.

The valuation is still low, and the rating is “superior to the market”. We believe that the company will further push forward the reform of the marketing system and accelerate the construction of a customer-centered personal insurance management system, and is expected to maintain steady operation and stabilize its dominant position in the market in the future. As of August 30, 2024, the company's stock price corresponds to 2024E PEV 0.7x. We gave 0.75-0.80 times 2024E PEV, a reasonable value range of 36.31-38.73 yuan, and a “superior to the market” rating.

Risk warning: Long-term interest rates are trending downward; new premium growth falls short of expectations.