Property reinsurance business exceeds our expectations in 2021
The company announced its 2021 results: the net profit of its mother was 6.363 billion yuan, an increase of 11.4% over the same period last year; the total property reinsurance premium was 51.9547 billion yuan, an increase of 7.0% over the same period last year; the comprehensive cost rate was 99.39%, an improvement of 2.72% over the same period last year; and the comprehensive cost rate of land property insurance was 106.6%, deteriorating by 2.2% over the same period last year. The performance of the company's property reinsurance business exceeded our expectations.
Trend of development
The strong performance of the property reinsurance business is driven by the bridge business and the domestic non-car insurance business. In 2021, the insurance premium of the bridge club increased by 20.7% compared with the same period last year, and the comprehensive cost rate decreased by 8.83 percentage points to 94.81%, mainly due to seizing the window of rate rise to expand new business; the insurance premium scale of other overseas property reinsurance business decreased by 12.1% compared with the same period last year, but the comprehensive cost rate decreased by 15.13 percentage points to 104.75%, mainly due to the company's initiative to optimize the business structure and the negative impact of the epidemic. Affected by the comprehensive car insurance reform, the growth rate of domestic property reinsurance business slowed to 5.0%, of which car insurance decreased by 17.5% compared with the same period last year. The company's innovative business led to an increase of 14.4% in non-vehicle premiums, while underwriting profitability remained sound. The annual comprehensive cost rate was 99.95%, up 0.17 percentage points from the same period last year.
The company took the initiative to shrink the savings reinsurance business, and the growth rate of domestic life insurance reinsurance slowed down. In 2021, the insurance premiums of the company's life reinsurance business increased by 4.2% compared with the same period last year, of which domestic life reinsurance premiums increased by 0.7%, while insurance reinsurance and savings reinsurance increased by 25.9% and 62.3% respectively compared with the same period last year, mainly due to the company's hedging interest rate downward impact on the active contraction of domestic savings products. Overseas savings reinsurance increased by 23.2% year-on-year, mainly due to the company's rapid expansion of high-quality business in Japan, Singapore, Hong Kong, China and other places.
Under the comprehensive car insurance reform, the land property insurance premium scale is under pressure, and the underwriting profitability is deteriorating. Due to the large negative impact of the comprehensive car insurance reform on small and medium-sized property insurance companies, the premium income of Dadi property insurance fell 9.6% in 2021 compared with the same period last year, which is 1.2 percentage points worse than that of 1H21. Among them, car insurance premiums decreased by 16.8% compared with the same period last year, non-car insurance premiums decreased by 0.4% compared with the same period last year, and the comprehensive cost rate was 106.6%, which was 2.2% worse than that of 1H21 (110.3%).
Affected by natural disasters and investment, the growth rate of net profit is much slower than that of 1H21. The company's full-year net profit growth rate of 11.4% was much slower than that of 1H21 (+ 62.6%), mainly due to the decline in financial reinsurance profitability and the deterioration of the investment side caused by natural disasters in the second half of the year. The company's net / total investment return in 2021 was 4.6% / 5.2%, down 0.1% / 0.8% from the same period last year. Affected by fluctuations in the 2H21 capital market, the total return on investment was significantly lower than 1H21's (6.6%).
Profit forecast and valuation
Due to the volatility of the 1Q22 capital market, we downgrade the company 2022e EPS13.7% to 0.18 yuan per share and introduce 2023e EPS to 0.23 yuan per share for the first time. Considering the improvement trend of the company's fundamentals, we maintain our neutral rating and target price of HK $1.05 unchanged. The company is currently trading at 0.23x/0.22x2022e/2023e P/EV, and the target price corresponds to 0.33x/0.31x 2022e/2023e P/EV, which has 43.8% room to rise compared with the current share price.
Risk
Natural disasters; the stock market fluctuated sharply.