Core views
The company's 24Q1 performance was under pressure, with net profit of 5.881 billion yuan, -38.3% year-on-year.
On the underwriting side or due to the decline in average vehicle premiums, the year-on-year growth rate of car insurance premiums fell to 1.9%, or mainly due to frequent disasters such as low temperatures, rain, snow, and freezing in the first quarter, which affected COR +2.2 pct to 97.9% year over year; and due to increased capital market fluctuations, even though the market value of bonds benefited from falling interest rates, the company's total return on investment over annualized was 0.8%, putting pressure on the overall situation. We believe that the short-term pressure on the company's performance was mainly affected by incidental factors. The basic trend of continuous improvement in the company's business situation and the company's own core competitive advantage as an industry leader have not changed. It is recommended to focus on the adjusted layout opportunities.
occurrences
China Financial Insurance Announces First Quarter 2024 Results
In the first quarter of 2024, under the new caliber, the company achieved insurance service revenue of 113.843 billion yuan, +5.9% year over year; comprehensive underwriting cost ratio increased 2.2 pct year over year to 97.9%; and net profit of 5.871 billion yuan, or -38.3% year over year.
Brief review
Premium income: The growth of car insurance premiums has slowed down, and the share of non-car insurance has further increased. Under the old caliber, the company achieved original premium income of 173,977 billion yuan in the first quarter of 2024, +3.8% over the same period;
(1) Auto insurance premiums were 69.240 billion yuan, +1.9% year-on-year, and the growth rate slowed; according to the Passenger Federation statistics, China's passenger car retail sales were +13.2% year-on-year in the first three months of 2024, and according to the caliber data of the State Financial Supervisory Administration, China's car insurance insurance amount and premium income were +18.2% and +2.6% year-on-year respectively in the first three months of 2024; we believe that when the growth rate of new cars and insurance amounts is more consistent, the slowdown in the growth rate of premium income may be due to the decline in average vehicle premiums after the autonomous car insurance pricing coefficient was liberalized; Company car insurance premiums The revenue growth rate is close to that of the industry as a whole, and the market share is still stable.
(2) Non-car insurance premiums amounted to RMB 104.737 billion, +5.0% year-on-year, accounting for a further increase of 0.7 pct to 66.8%. Among them, corporate property insurance/cargo insurance/eHealth insurance premium income was +11.3/9.4/6.2% year-on-year respectively, contributing mainly to the increase in non-car insurance premiums.
Underwriting profit: The comprehensive cost ratio increased, and insurance service performance declined markedly in the first quarter of 2024 due to factors such as low temperature, rain, snow and freezing, etc., and the company's comprehensive underwriting cost ratio was +2.2pct to 97.9% year over year; insurance service performance (insurance service revenue - insurance service expenses - sharing of premiums plus amortization of insurance service costs - withdrawal of premium reserves) was 4.633 billion yuan, -31.7% year on year; underwritten financial loss (representing the cost of insurance policy funds) was -25.80 billion yuan, +5.4 billion yuan year on year %.
Investment income: Capital market fluctuations intensified, and return on investment increased capital market fluctuations in the first quarter of 2024, and the company's equity investment income was under pressure, but due to falling interest rates and rising bond market value fluctuations, the company's total unannualized return on investment was 0.8%, of which investment income and interest income were -35.7/ 5.0% year on year, respectively, and profit and loss from fair value changes was -164 million yuan (+1,225 million yuan in the same period last year).
Investment suggestion: The “increase in quality and quantity” is expected to continue, maintaining the “purchase” rating in the first quarter of 2024, or the company's performance will be pressured by declining average vehicle premiums, rising comprehensive cost rates, and fluctuations in investment income; however, looking forward to the future, (1) as far as premium income is concerned, we believe, on the one hand, that the phased goals of “price reduction, increase insurance, and quality improvement” of the comprehensive car insurance reform have basically been achieved. Currently, there is little room for further decline in average vehicle insurance premiums under the rigid constraints of operating costs, and the strengthening of insurance regulations on average vehicle insurance. There is limited room for enterprise cost competition, and the car insurance market may usher in the future Steady development will help leading insurers to increase their market share with their strong brand effects and refined pricing capabilities, and the Matthew effect in the industry is expected to be prominent; on the other hand, as the penetration rate of new energy vehicles continues to increase, the higher average vehicle premiums of NEV insurance are also expected to drive further growth in the overall premium income of the industry.
(2) As far as the comprehensive cost rate is concerned, with reference to Ping An of China, the blizzard disaster increased the comprehensive cost rate of Ping An Industrial Insurance by 2.0 percentage points this quarter. However, as a large property insurance company with a national layout, we believe that the year-on-year increase in disaster accidents such as low temperatures, rain, snow, and freezing may also be the main reason for the rise in China's 24Q1 comprehensive cost ratio; if one-off factors such as disasters are excluded, the overall upward space for the company's comprehensive cost rate may be limited, and the impact of automobile travel recovery after adjustment of epidemic prevention and control measures has been confirmed by the company's overall business performance for the full year of 2023; and the company's comprehensive cost ratio is expected to continue to remain at an excellent level with good business quality and strong business management capabilities.
(3) As far as return on investment is concerned, the increase in bond market value in the first quarter partially offset the impact of the decline in equity investment income due to increased capital market fluctuations; looking forward to the future, on the one hand, the company's equity investment income is expected to pick up as the capital market continues to recover; on the other hand, the business operated by the company's debt side is mainly short-term insurance, so there is no need to worry too much.
The company is a financial insurance leader in China, with large premiums and excellent business quality; we believe that the short-term pressure on the company's performance does not change the basic trend of continuous improvement in the company's business situation and the company's own core competitive advantage as a leader in the industry. We have adjusted the valuation model according to the new accounting standards and the company's actual business conditions. We expect the company's insurance service revenue from 2024 to 2025 to be 4813.94/510.610 billion yuan, respectively, +5.29/ 6.07% year on year; net profit to mother, respectively $276.32/31.48 billion, +12.39/ 13.92% year-on-year respectively; the current stock price corresponds to 2024E 0.82 times PB, giving the company 1.0 times PB, corresponding to a target price of HK$12.11, maintaining a “buy” rating.
Risk warning:
Increased market competition has exceeded expectations: the expansion of the autonomous car insurance pricing coefficient range has made insurers have greater ability to reduce car insurance discount factors; although overall, we believe that currently there is not much room for car insurance premiums to continue to fall, and currently only a few contracts are close to the lower limit of the pricing coefficient, so the expansion of the autonomous car insurance pricing coefficient range makes the industry less likely to reduce prices as a whole; however, some small and medium-sized insurers are still likely to obtain customers at low prices, thus intensifying competition in the car insurance industry. If market competition intensifies beyond expectations, the company may face a decline in premium income and a shrinking market share.
The impact of natural disaster risk exceeds expectations: in the event of a major natural disaster, the company's insurance coverage rate will rise sharply, leading to an increase in the company's overall cost ratio, which will have a negative impact on the company's performance.