Positive on pure life insurer; raise TP to HK$20.0. We revise up the insurer's FY24-26E EPS forecasts by 148%/38%/31% to RMB4.45/2.58/2.61 (table), to reflect the 3Q investment outperformance and improved fundamentals, and remain positive on the insurer's profit realization in 4Q24. 3Q NPAT soared 17.7x YoY to RMB66.2bn, outgrowing most listed peers, mainly driven by net fair value gains (+80x YoY), as the insurer held the second highest exposure of FVTPL core equities (i.e. stocks and equity funds) among listed peers at 11.2% by 1H24. As a pure life insurer, we expect China Life capable of riding on the wave of equity market rally, and result in better 2H24 investment prints on top of a low base in 2H23. For NBV, we expect margin expansions to continue driving the NBV uptick given 1) Sep/Oct pricing interest rate (PIR) cut shifted focus to par product sales, which could lower the cost of liability compared to traditional guaranteed products; 2) regulations on restrictive commission costs extended to the agency channel, providing upside for further margin increase; and 3) lengthened policy term structure with 10yr+ FYRP contributing 46.4% of total FYRP in 9M24, +4.6pct YoY. Looking ahead, we expect FY24E NBV growth at 17%, staying resilient given improved UW product and channel mix. Maintain BUY, and raise 12m-forward TP to HK$20.0 (prev. HK$15.5), implying FY24E 0.41x P/EV and 0.91x P/BV.

Expect NBV growth of 17% in FY24E. In 9M24, NBV grew 25.1% YoY on a like-for-like basis, higher than that in 1H24 with growth at 18.6% YoY, indicating strong growth momentum in 3Q24 underpinned by margin expansion and FYP rises. We estimate 3Q NBV could rise >40% YoY amid a surge of new business sales, where the 3Q FYP/FYRP/10yr+ FYRP was up 46.4%/85.5%/74.9% YoY. We attribute the premium growth to 1) the release of front-loaded demands in Jul/Aug prior to the PIR cut for traditional guaranteed products; 2) booming par product sales in Sep; and 3) stabilized agency force with heightened productivity, enhanced with a rapidly advanced new team under the "Seed Program". In 9M24, the agent scale stabilized at 641k, mildly up 1.9%/1.1% vs 2Q/year-start. Agent productivity measured by monthly FYRP per agent rose 17.7% YoY (vs 1H24: +12.4%). For 4Q, mgmt. guided that the product mix will shift to the increasing sum-assured whole life (IWLPs) and participating products for the FY25 jumpstart sales. Expect FY24 NBV growth by 17% YoY.

3Q investment surge unsustainable; expect allocations to HDY stocks. Total investment income (TII) surged 152% YoY to RMB261.4bn in 9M24, implying the 3Q TII soared 5.28x YoY to RMB139.1bn, primarily driven by net fair value gains thanks to the equity market rally in 3Q24. We notice the insurer assigned more equities into FVTPL, rather than FVOCI, given core equities (incl. stocks and equity funds) under FVTPL and stocks under FVOCI made up 11.2%/0.6% of total investment assets by 1H24, which allowed the life insurer to fully benefit from net fair value gains, which was up 73.3x YoY in 3Q24 under a beta-driven momentum. Despite the upsurge, we do not think the investment outperformance to be sustainable. In the long run, we regard an increased allocation to high-dividend yield (HDY) stocks under FVOCI will be strategically conducive to smoothing the volatility of net profit and net asset value changes.

Valuation/Key risks: The stock is trading at FY24E 0.3x P/EV and 0.8x P/BV, +1.9/2.2STD above the respective 3-yr historical avg. We expect more upside underpinned by improved book value and embedded value. We revise up FY24-26E EPS forecast by 148%/38%/31% to RMB4.45/2.58/2.61 (table) to factor in the 3Q investment outperformance and improved UW mix. Maintain BUY, and raise 12m-forward TP to HK$20.0 (prev. HK$15.5) implying FY24E 0.41x P/EV (prev. 0.3x) and 0.91x P/BV (prev. 0.81x). Key risks involve underperforming FY25 jumpstart sales; increased volatility in equity market; and prolonged low interest rate that will weigh on reinvestment yields.