Introduction: bright-eyed financial report is only an achievement, and the ability of continuous evolution is the core value of Zhongan.

In December 1831, the Beagle officially set sail and began to travel around the world. On this 90-foot-long old two-masted square-sail warship, a bibliographer named Darwin has traveled to most parts of the world for five years. Based on the observation of biological species in different places, Darwin wrote a book called the Origin of species, which changed human cognition.

In the book, Darwin put forward the historical view of "natural selection" and "survival of the fittest". One of the most important is that all the animals and plants we see today are the result of continuous adaptation and evolution.

Darwin's theory of evolution is projected from biology to many fields in the future. In business history, the evolution based on products and business models has become the key to break the situation of modern enterprises.

Zhongan Online P&C Insurance (06060.HK) has been among the top gainers in the Hong Kong stock market over the past two years. It has climbed from a low of HK $16.59 in 2019 to a peak of HK $78.8 this year, a sharp increase that has quadrupled in two years.

With the rise of Zhongan's stock price, there are naturally market capital factors playing a role, but the consensus that funds can see more and do more is actually supported by solid logic. on the one hand, the basic performance of the insurance business has hit new highs one after another. on the other hand, based on the evolving ecological model, it has helped Zhongan establish its long-term competitiveness.

01 unexpected higher-than-expected answers

The epidemic in 2020 has dealt a heavy blow to many industries, but Zhongan Online P&C Insurance has shown a commendable ability to "grow against the market" with a bright financial report. This is not only Zhongan Online P&C Insurance's first full-year profit report, but also greatly exceeded investors' expectations.

In the past year, Zhongan recorded a profit of 550 million yuan and reversed its losses. On the one hand, thanks to the growing health insurance business, the total premium income reached 16.7 billion yuan, an increase of 14.2% over the same period last year, the number of insured users increased to 520 million, and the total number of insurance policies exceeded 7.9 billion; on the other hand, the company's comprehensive operating efficiency greatly improved, making the comprehensive cost rate reduced to 102.5% compared with the same period last year.

If Zhongan's business map is regarded as a long volume, then unfolding this long volume, we can see that the most important thing lies in the company's health and ecological business.

From health insurance to health ecology, from low-frequency purchasing behavior to high-frequency health services, this comprehensive evolution around the health strategy means that the company's core product "premium series" is no longer a simple insurance product. It is the starting point for Zhong'an to lay out the ecological closed loop of medical services. It also constitutes one of the core competitiveness of Zhongan.

In the whole health and ecological business, enjoy the series of health insurance, Zhongan Internet Hospital, warm wow technology together constitute a "insurance + medicine + medicine" ecological closed loop.

As the payer of the medical service industry chain, health insurance effectively integrates the relevant value of health services, which is clearly reflected in the quantitative data-the insurance premium income of healthy ecology reached 6.6 billion yuan in 2020, an increase of 37.4% over the same period last year. More than twice the growth rate of the industry.

The health insurance ARPU has also risen from 240 yuan in 2017 to 450 yuan in 2020, which means that users have become more sticky to Zhongan products in the past few years due to the iteration and richness of the products.

From another dimension, the ARPU of premium e-students on their own platforms has even reached 708 yuan, which is more than twice that of non-own platforms, indicating that the construction of their own platforms has also made users really settle down.

With the addition of health insurance and user thinking, it makes sense for Zhongan to enter the field of health. Under the enabling of science and technology, Zhong'an has realized 7 × 24-hour consultation and AI-assisted diagnosis and treatment on its own platform. for high-concentration and moderate user demand points, Zhong'an 's strategy is to launch related products at the first time. The embodiment of this concept at a deeper level lies in the various scenarios in which Zhongan strives to fully infiltrate and serve users.

Another bright color on this long scroll comes from the digital ecological business. In 2020, the digital life sector contributed 6.3 billion yuan in premiums, an increase of 25.2% over the same period last year. Among them, innovative products such as pet insurance and broken screen insurance accounted for a substantial increase in the proportion of Zhong'an digital ecological premiums from 4% in 2019 to 16% in 2020.

It is not difficult to see that this long-term and sustained self-evolution has gone deep into Zhong'an 's bone marrow, even the company's leading product, premium e-health, has achieved 19 iterations in the five years since its launch, constantly realizing this self-evolution. On the basis of standard millions of medical care, a three-dimensional security system is established at the same time to meet the needs of greater coverage of the sinking market.

However, whether it is the rapid growth of health insurance, innovative insurance, or the rapid improvement of user ARPU, they are inseparable from the construction of their own platform.

In terms of the construction of its own platform, Zhongan's own "flow pool" effect is becoming more and more obvious. With brand, innovation and service as the starting point, we are committed to continuously enhance the value of users.

From the point of view of cost, self-owned platform can effectively reduce operating costs, improve user stickiness and increase customer prices. In the past year, the proportion of direct revenue in total income and the purchase rate of direct operating platform have been significant, and the deficiency of future traffic will be made up.

In 2020, Zhongan Online P&C Insurance's own platform premium income has reached 13%. At the same time, the strong user stickiness of its own platform was also demonstrated, and the purchase rate of its own platform was excellent, reaching 16.6%. Taking its health and ecological premium series as an example, the ARPU and renewal rate of its own platform are significantly better than those of non-self-owned platform.

Through the cooperation Douyin Spring Festival Gala activities, 15 billion exposures show, so that the brand influence of Zhong'an has been raised to another level. By increasing investment, the brand value is highlighted, and the own platform can better attract users, and the Spring Festival Gala is the top event of the year in the country, which can be exposed in the Spring Festival Gala, which is conducive to enhance the value of the brand and its own platform.

Embracing change, self-evolution, has gone deep into corporate values. Zhong'an has always stressed the "fast" of action, fast is better than slow, and form the habit of running.

On the one hand, healthy ecology forms a moat, digital life innovation insurance is expanding, on the other hand, the export of science and technology is also quietly developing, which is becoming the key driving force of the company's growth.

In terms of science and technology business, the digital transformation of insurance companies continues to accelerate due to the catalysis of the epidemic situation and the promotion of industry policies. In 2020, Zhongan science and technology export business income reached 365 million yuan, an increase of 35.4% over the same period last year, and has increased eightfold in the past three years.

It serves 75 customers in the insurance industry chain, a net increase of 39 over last year, and its customer base has been further expanded to industry leading companies including AIA Group, Taiping property Insurance, Pacific Insurance Group, Manulife Sinochem, HSBC Life Insurance and so on. About 75% of the surviving customers have further purchased more insurance system modules or upgraded the original modules this year, reflecting the long-term value of the products to the customer's business.

In particular, two of Zhong'an 's digital products, virtual bank ZA Bank and digital life insurance ZA Insure, were officially launched in March and May last year, respectively. Using full Internet empowerment, Zhong'an 's "technology products" once again outperformed the industry.

Generally speaking, Zhongan Online P&C Insurance's bright 2020 annual report is not only the result of the company's continuous evolution, but also a portrayal of management's insistence on innovation. The management always adheres to the original intention of "quality growth", with great health as the core and scientific and technological empowerment as the driving force to achieve continuous optimization of the company's business.

02 the evolutionary path of Zhongan

In the past seven years, from start-up to stride forward, from new species to popularity, the tide of Internet insurance in China is constantly changing. Zhong'an is not only the person who experienced the ups and downs, but also the reformer who set off the wave.

At the beginning of its birth, Zhongan attracted the attention of the capital market because the company was the winner of China's first Internet insurance license. In the following two years, the company successively won the business qualifications of short-term mental health insurance and auto insurance. For a new racetrack like Internet insurance, the license plate clearly means a distinct first-mover advantage.

But this does not mean that Zhongan can rely on the license plate advantage to do nothing. In the start-up period, Zhong'an 's products are mainly e-commerce return freight insurance, which accounts for more than 50% of the total revenue and is highly dependent on e-commerce platforms. Return freight insurance although the channel fee rate is low, but the compensation rate is very high, so the profit space is limited.

The key turning point occurred in the entry of health insurance business. As the core direction of future development, Zhong'an began to occupy the market with a continuously evolving product path.

At this stage, the number of partners in Zhongan has increased significantly, from 71 in 2015 to 330 in 2018. At the same time, the insurance structure of Zhongan is more diversified, and the underwriting scale of automobile, consumer finance and healthy ecology is expanding rapidly.

This made the compound growth rate of the original premium as high as 81.5% in 2016-2018. In the future, Zhongan's strategic layout of gradually opening up and cooperation with science and technology as the core was established during this period.

In 2018, the underwriting scale of Zhong'an exceeded 10 billion yuan for the first time, and in 2019, Hong Kong's first virtual bank, ZA Bank, opened. At the same time, the Internet hospital built by Zhong'an also began to provide medical services such as online consultation.

Different from other Internet insurance companies, science and technology export is becoming a new performance growth point for the company.By partnering with Japanese property insurance company Sompo, Singapore insurance institution NTUC Income, and O2O platform Grab in Southeast Asia to provide technology export products for the Internet platforms of overseas insurance companies, Zhong'an has established a series of benchmarking service cases with exemplary effect, which is the driving factor for the growth of Zhong'an 's technology export business in 2020.

Even under the disturbance of the black swan factor of the epidemic, Zhong'an still served 75 customers of the insurance industry chain in 2020, with a repurchase rate of 75% the following year, and the revenue of the entire science and technology export business reached 365 million yuan, an increase of 35.4% over the same period last year. It has grown eightfold in the past three years.

Reviewing Zhongan Online P&C Insurance's development, it is not difficult to find that the company has never been satisfied and is always moving towards a business with greater potential and higher ceilings. In a word, Zhongan Online P&C Insurance's evolution is mainly reflected in three aspects: business diversification, profit focusing and profit growth. Zhongan Online P&C Insurance, who continues to iterate, has attracted the attention of the capital market and is naturally in logic.

03 value extension driven by science and technology

After eight years of continuous evolution, Zhongan Online P&C Insurance has established a "insurance + medicine + medicine" closed-loop ecology, and successfully listed on the capital market and made a profit for the first time. In the future, Zhongan firmly believes that "those who get users get the world", considering further continuous innovation around the needs of users, service upgrading to provide more security experience, create long-term value, and take the company to a new height.

Zhongan's mission is: "technology-driven finance, do temperature insurance", to achieve this mission, it is obvious that technology as the driving force of the business.

At the present stage, Zhongan Online P&C Insurance's scientific and technological strength is mainly reflected in three aspects:Internal enabling, external output, digital landing.

Internal enabling is the most important application direction of Zhongan Science and Technology.Although this business can not bring direct revenue, it can greatly optimize the costs of other businesses, effectively improve the overall operational efficiency, and achieve the goal of reducing costs and improving efficiency.

Compliance has always been the biggest problem facing the insurance industry. In June last year, the Bancassurance Regulatory Commission issued a document requiring insurance institutions to record and keep transactions of selling insurance products on proprietary network platforms for inspection by means of sales page management and sales process records. The pressure of this digital transformation is a headache for many insurance institutions that lack the strength of research and development.

But this is not a problem for Zhongan. Zhongan Technology is the first in the industry to launch a visual backtracking system, which has little intrusion into the original business system and fast access speed. During the 100-day preparation cycle, retrospective management has been implemented for more than 40 insurance industry chain companies, including DiDi Global Inc. Finance, to support their compliance with the needs of operating Internet insurance business.

As the first Internet insurance company in China and the first company to let the core insurance system run in the cloud, Zhong'an embraces the independent evolution of new things and makes Zhong'an one step faster again.

"boundless Mountain 1.0" adopts the structure of "fat front + thin core", mainly to meet the needs of Zhong'an high-speed business development at that time. The emergence of "Unbounded Mountain 1.0" has made Zhongan move from a "bounded" insurance company to a "boundless".

On the basis of "Unbounded Mountain 1.0", Zhongan upgraded again, placing all the business, technology and data stations on the cloud. As for the future, Unbounded Mountain will create an open insurance ecosphere and open "Unbounded Mountain N.0", which also indicates the continuous iterative evolution of Zhongan.

In terms of external export, Zhong'an not only has deep cooperation with the insurance giant AIA, but also launched core products in the international market, which is highly recognized by customers.Graphene, the core system of digital insurance, and Fusion, the insurance platform system of Internet companies, have many high-quality users with high loyalty.

In-depth cooperation with leading institutions such as SOMPO, which accounts for 80 per cent of Japan's property insurance, NTUC Income, the largest integrated insurance institution in Singapore, and OVO, Indonesia's leading e-money package platform, and AIA Group Limited Group has become a regional science and technology partner.

Even Southeast Asia's leading O2O platform Grab, with the help of Zhongan's insurance technology, generated more than 70 million policies last year. On March 18, Zhongan also announced that it would become a partner with PFI Mega Life, a joint venture operated by Prudential Financial Group in Indonesia, to create insurance products and digital solutions.

These are just the epitome of the output of Zhongan technology. Looking at the overall situation, Zhongan Technology's partner field spans insurance companies, financial institutions, economic generation platforms, automotive ecology, health care, technology and Internet platforms, and has cooperated with more than 400 enterprises and institutions.

In terms of digital landing, Zhongan has achieved multi-scene landing, pet insurance, mobile phone broken screen insurance and other innovative products continue to promote the growth of the company's performance. Make the company's business more diversified, but also make users' ARPU higher.

Pet insurance is a new type of insurance, which has a great market demand. Zhongan took the lead in using the nose print technology, with a recognition success rate of more than 99%, which can effectively identify pets, improve product risk control and lower the product threshold.

In the future, this technology is expected to be used in urban pet management, pet lost and other scenarios, the market potential is huge. In the digital life ecology in 2020, the share of revenue from innovative business has increased from 4% in 2019 to 16% in 2020.

Multi-channel digital landing, so that Zhongan has more autonomy, on the one hand to avoid the dilemma of single-channel fees are too high, on the other hand, the live broadcast mode greatly improves the stickiness of users. The purchase rate of its own platform reached 16.6%, which successfully realized the secondary conversion of traffic, and also demonstrated users' recognition of Zhong'an products and brands.

In addition, the country's first digital RMB insurance policy and becoming the first digital transformation partner of the National Development and Reform Commission all show Zhongan's attitude of actively embracing innovation. Zhongan's positive self-evolution attitude makes it always able to step on the industry tuyere for the first time. With the blessing of science and technology, Zhong'an in the next stage of development is expected to continue to take off.

04 how to value Zhongan?

Since the beginning of this year, Zhong'an 's share price has risen by 30%, but it still fails to reflect the true value of Zhong'an.

From the perspective of valuation, Zhongan is still significantly undervalued by the market, mainly because of the valuation bias in the market. Throughout the capital market, no company's business is exactly the same as Zhongan, which has an impact on investors' valuations and puts them in valuation difficulties.

But a short undervaluation will not affect the value of Zhongan, when the market is aware of their mistakes, those investors who saw the value of Zhongan in one step will make a lot of money. Graham, the father of value investment, once mentioned: "in the short term, the stock market is a voting machine; in the long run, the stock market is a weighing machine." to analyze a company, we should start with its core values.

So how should investors view the value of Zhongan Online P&C Insurance? For the lack of benchmarking enterprises, the best way is to use the split method to align different businesses differently.

From the Internet insurance sector, the current PS valuation of Zhongan is less than 5 times, while the PS valuation of Lemonade, a US-listed insurance technology company, is as high as 130 times. Not to mention the fact that Lemonade is still in the red, in terms of revenue alone, the enterprise is only the single digits of Zhongan.

From this point of view, Zhongan has 25 times the room to rise. From the perspective of science and technology and health, Zhongan Online P&C Insurance can refer to the valuation methods of OneConnect Financial Technology and Ping An Healthcare And Technology, and also has great potential to rise.

Zhongan Online P&C Insurance's business model spans the three major industries of insurance, finance, and technology, with "first-mover advantage" + "data and class" + "science and technology empowerment" + "closed-loop ecology", which makes it possible for Zhongan Online P&C Insurance to become a giant in the industry. however, at present, this characteristic of Zhongan is still in a hidden state and has not yet been discovered by investors.

Continuous evolution makes Zhongan continue to grow, but at the same time, the market misperception makes the market underestimate it too much. in fact, there is already a significant gap in the expectation of Zhongan's share price. When the market notices the cognitive bias, will the valuation return belonging to Zhongan Online P&C Insurance be far away?