[Incident] Xinhua Insurance released an advance increase forecast: Net profit due to mother for the first three quarters is estimated to be 18.6 billion yuan to 20.5 billion yuan, and is expected to increase 9.1 billion yuan to 11 billion yuan year on year, up 95% to 115% year on year.

Significant profits were achieved in a single quarter in the third quarter of 2024. The company's net profit for the first half of 2024 was 11.1 billion yuan, +11.1% year-on-year. The predicted increase for the first three quarters was significantly higher than in the first half of the year. Based on this calculation, net profit for the third quarter was about 7.5-9.4 billion yuan, turning a loss into a profit (loss of 0.44 billion yuan for the same period last year).

The recovery in the capital market led to an increase in the company's investment income, which was the main reason for the sharp rise in Q3 profits. According to the company's announcement, net profit also increased significantly in the first three quarters. The main reason was that the company moderately increased its investment in equity assets in the first three quarters, increased the allocation ratio of equity assets; at the same time, strengthened quality management on the insurance debt side and optimized the business structure. The recent recovery and rise in the capital market led to a significant year-on-year increase in the company's investment income in the first three quarters of 2024. In the first three quarters of 2024, Wandequan A, Shanghai and Shenzhen 300, and China Bond indices rose 8.2%, 17.1%, and 2.7% respectively, significantly better than -1.4%, -4.7%, and +0.8% in the same period last year.

We believe that the company's high share+fund holding ratio is the main reason why the performance of the stock market is highly flexible. As of mid-2024, the share of the company's stocks and funds in investment assets was 10.0% and 8.1%, respectively. Compared with the beginning of the year, +2.1pct and +1.8pct, respectively, the share+fund investment ratio was significantly higher than that of other listed peers.

Judging from the stock asset classification, the company's FVTPL shares account for about 88.3%, which is also at a high level in the industry. Fluctuations in FVTPL stock prices are directly reflected in current profit and loss, and the impact on current profit is significant.

The valuation is still low, maintaining the “better than the market” rating. We believe that the company will firmly adhere to its strategic direction, continue to comprehensively deepen “customer-centered” professionalization and market-based reforms, and adhere to institutional management. In particular, it will step up efforts in the fields of product competitiveness improvement, team improvement and education, technological empowerment, expansion of brand influence, and diversification of the service ecosystem to comprehensively enhance the company's core competitiveness. As NBV Margin increases significantly and the company's investment performance picks up, the company's valuation is expected to increase. Give 0.80-0.85 times the 2024 PEV, with a reasonable value range of 68.35-72.63 yuan. The current stock price corresponds to 2024E PEV 0.61x.

Risk warning: 1) long-term interest rates are trending downward, 2) the stock market fluctuates greatly, and 3) new premium growth falls short of expectations.