Key points of investment

Incident: China Taibao 9M24 achieved a cumulative net profit of 38.31 billion yuan, an increase of 65.5% over the previous year, corresponding to the 3Q24 single-quarter growth rate of 173.6%. The company's performance is in line with the previous pre-increase announcement range, which is affected by the rise in the capital market. Fair value change losses in the consolidated statement were substantially corrected from -1.917 billion yuan accumulated by 9M23 to 42.103 billion yuan accumulated by 9M24. The cumulative ROE for the first three quarters reached 14.6%, up 4.7 pcts year-on-year. , the company's performance was in line with expectations.

Special analysis of the new standards: Investment spreads drive profit growth, and underwriting performance is stable year over year. 9M24 achieved a 2.3% year-on-year increase in insurance service revenue (of which life insurance and industrial insurance growth rates were -2.5% and +4.4%, respectively), and insurance service performance decreased slightly by 0.5% year over year; our underwriting profit increased 0.6% year over year; the investment spread we built increased sharply by 188.7% year on year, which is the core reason for the current net profit surge of 65.5%. 9M24 disclosed a net/total return on investment of 2.9%/4.7% year on year, down 0.1 pcts year on year. Mainly, the rapid rise in the equity market at the end of September led to the release of floating profits, but the continued low interest rate environment suppressed the release of income from interest-type assets. Under IFRS9, large equity investments were included in transactional financial assets, and the balance of other equity instruments (FVOCI equity) reached 126.832 billion yuan at the end of the period, accounting for 4.9% of the invested assets (97.965 billion yuan and 4.4% at the end of 2023, respectively), causing changes in fair value to have a significant impact on current net profit.

Life insurance continued to reap the results of the first and second phases of the “Long Aviation” transformation, and NBV continued to improve year-on-year for 9 consecutive quarters. 9M24 achieved a cumulative new business value (NBV) of 14.238 billion yuan, a year-on-year increase of 37.9%. Corresponding to the 3Q24 single-quarter year-on-year growth rate, it has achieved positive year-on-year growth for 9 consecutive quarters. In terms of attribution: 1.9M24's cumulative new NBV orders fell 4.8% year on year, and NBVMargin increased 6.2 pcts year on year to 20.1% year on year. 2. Looking at channels, the year-on-year growth rates of new insurance and banking insurance coverage were 16.3% and -18.4%, respectively (of which core term payments grew by 12.4% and 23.2%, respectively). Individual insurance/banking insurance/group government contributed 47.9%/34.0%/18.1% to new insurance, respectively. The channels are more diversified. The average monthly core workforce was 0.058 million people, up 2.4% year on year. Monthly first-year premiums for core workers increased 15.0% year over year, the number of additional employees increased 15.5% year on year, and production capacity for new hires increased 35.0% year on year. Under the leadership of the new team, Taibao Life Insurance has deepened “strategic decoding”, upgraded customer-centered, and created a customer-centered business strategy to create services, customers, and digital management strategies. Further release of operating results can be expected.

Industrial insurance insists on sustainable high-quality development, and underwriting profits remain stable. 9M24 Taibao Insurance achieved original premium income of 159.819 billion yuan, up 7.7% year on year, with auto insurance and non-vehicle growth rates of 3.3% and 12.2% year on year; achieving insurance service revenue of 145.202 billion yuan, up 4.1% year on year; and the comprehensive underwriting cost ratio was 98.7%, the same as the same period last year. The slight deterioration in 3Q24 was mainly due to a year-on-year increase in losses due to high incidence of natural disasters.

Profit forecasting and investment ratings: Investment spreads have surged, underwriting performance is stable, and value growth continues to improve. We maintain our profit forecast. We expect net profit to be 428, 380, and 43.3 billion yuan in 2024-26. We will buy solid shadow stocks with high dividend dividends and maintain a “buy” rating.

Risk warning: Changhang's transformation fell short of expectations, and the continued effectiveness of the strategy fell short of expectations