1Q24 net profit fell short of our expectations
China People's Insurance announced 1Q24 results: the comprehensive financial insurance cost ratio (CoR) was +2.2ppt to 97.9% year on year, lower than our expectations, mainly due to the impact of the freezing rain disaster exceeding our expectations; new life insurance business value (NBV) (assuming comparable caliber) was +81.6% year over year, in line with our expectations; net profit was -23.5% to 8.963 billion yuan, lower than our expectations, mainly due to financial insurance compensation exceeding expectations and falling short of expectations due to the impact of the disaster.
Development trends
Life insurance NBV increased. 1Q24 Company First Year Premium (FYP) /Long Term Insurance FYP was -20.6%/-21.4%, respectively. Thanks to (1) effective cost pressure reduction under “integration of reporting and banking”, and (2) continuous optimization of the business structure (premiums paid over a ten-year period of life insurance increased year-on-year compared to the same period last year), the value ratio of the new life insurance business increased significantly. NBV (comparable caliber) was +81.6% year over year, leading the industry in growth rate.
Financial insurance CoR is under pressure, and coverage targets remain unchanged. 1Q24's overall financial insurance/car insurance/non-car insurance premium income was +3.8%/+1.9%/+5.0%, respectively, slightly lower than the industry growth rate (+5.1%/+2.6%/+7.1%, respectively), the growth rate declined or the company's optimized structure under a high-quality development strategy (eliminating high-risk and low-quality businesses). The company's CoR for the first quarter was +2.2ppt to 97.9% year-on-year, mainly affected by the freezing rain disaster in the first quarter and the increase in vehicle insurance rates due to normalization after the epidemic, falling short of our previous expectations. At the performance meeting, the company stated that it will still maintain the coverage target of 97% for car insurance/100% for non-car insurance.
The income and profit performance of the Human Insurance Health Insurance is steady. 1Q24 Health Insurance FYP/First Year Annualized Premium (APE) were +8.9%/+25.6%, respectively. The profit for health insurance under the new standard reached 1.52 billion yuan.
Financial insurance payments exceeded expectations, and poor equity investment performance dragged down net profit performance. The company's net profit for 1Q24 was -23.5% year-on-year to 8.963 billion yuan, lower than our expectations. It was mainly affected by higher financial insurance payments than expected and the decline in equity investment income due to capital market fluctuations.
Profit forecasting and valuation
We maintain 24e/25e EPS at 0.61 yuan/0.66 yuan. The current A/H stock price corresponds to 0.9x/0.4x24EP/B. We maintain the Human Insurance-A/H performance rating and target price of HK$6.90/HK$3.59. The target price corresponds to 1.2x/0.5x 24ep/b, with 28%/34% upside compared to the current stock price.
risks
Natural disasters; increased competition in the auto insurance market; new premium growth falling short of expectations; sharp drop in long-term interest rates; large capital market fluctuations; policy and regulatory uncertainty.