Core views:
The company released a quarterly report: net profit attributable to mother under the new standards was 5.87 billion yuan, -38.3% year-on-year.
Net profit declined by a relatively large margin due to a combination of factors such as the drag on the equity market and the decline in underwriting profits. Q1 The company's net profit to mother was -38.3% year-on-year, slightly lower than market expectations. First, underwriting profitability declined. The comprehensive cost rate for the first quarter was 97.9%, +2.2pct year on year, while the growth rate of insurance service revenue (5.9%) was lower than the same period last year (9.2%), which led to a year-on-year ratio of underwriting profit of -48.3% (calculation caliber); second, on the investment side, capital market fluctuations led to a decline in return on investment. Although the fair value of bonds in FVTPL assets increased, the return on equity investment declined year-on-year. 0.8% (unannualized).
Underwriting profitability is under short-term pressure due to base figures and natural disasters. (1) Volume: Premium income in the first quarter was +3.8% YoY, and car insurance/non-car insurance YoY +1.9%/5%. (2) Price aspect:
Under the new guidelines, COR was 97.9%, +2.2 pct. It was mainly affected by natural disasters and traffic growth. There were fewer natural disasters in the same period last year, while the low temperature, rain, snow, and freezing disaster before the Spring Festival this year led to an increase in payout rates. Furthermore, during the same period last year, the epidemic was optimized but travel was lower than expected, and the resumption of travel this year led to a year-on-year increase in the risk rate. On the one hand, the company is actively promoting business restructuring, including increasing the share of the home-owned car business in car insurance, and increasing the profitable personal non-vehicle business of non-car insurance; on the other hand, continuously improving risk reduction management capabilities; furthermore, improving the pricing flexibility of new energy vehicle insurance; finally, considering the gradual increase in the COR base, COR is expected to improve quarterly.
Profit forecast and investment advice: Underwriting profit declined due to the high base, but as the base gradually declined, annual performance expectations improved. The company's EPS is expected to be 1.31/1.44/1.62 yuan/share in 24-26, giving the company 1.1XPB for 24 years, a reasonable value of HK$13.08 per share, giving the company a “buy” rating (HKD/CNY=0.926).
Risk warning: Natural disasters are frequent, new car sales fall short of expectations, and the increase in payout rates exceeds expectations.