Incident: The company issued a premium income announcement for April 2024. In April, the company achieved premium income of 36.518 billion yuan, down 1.4% year on year. Among them, car insurance increased 3.5% year on year and non-car insurance fell 7.8% year on year.
Car insurance premiums were +3.5% year-on-year, mainly due to new orders and renewals contributing to the company's car insurance premium income of 21,842 billion yuan in April, an increase of 3.5% over the previous year. The company's car insurance premium growth rate continued to improve month-on-month, and is expected to be mainly due to new orders and renewal business contributions. Looking at the whole year, driven by the increase in automobile production and sales and the trade-in policy, we expect the company's car insurance premiums to increase by about 5%. As for car insurance COR, the impact of natural disasters has weakened sequentially since 2024Q2, and the company's payout rate is expected to decline month-on-month. Continued strict implementation of “integrated reporting” by superimposed car insurance is expected to drive cost rate improvements, and 2024Q2's car insurance COR is expected to be at a good level. Looking at the whole year, we expect the company's auto insurance COR to improve below 97% in 2024, driven by continuous optimization of the car insurance business structure, focusing on risk reduction management, and regulation to guide rational competition in auto insurance.
Non-car insurance premiums were -7.8% year-on-year, mainly due to pressure from the growth rate of government business and corporate business. In April, the company achieved non-car insurance premium income of 14.676 billion yuan, a year-on-year decrease of 7.8%. Looking at insurance types, agricultural insurance, corporate financial insurance, and credit guarantee insurance all experienced double-digit declines over the same period last year, which dragged down the performance of non-car insurance.
Among them: (1) Selection of government services in some regions has yet to be carried out, leading to pressure on agricultural insurance and major illness insurance premiums. The premium growth rates for agricultural insurance and eHealth insurance in April were -12.2% and -6.1%, respectively. (2) The company insists on effective development and actively optimizes the corporate business structure, which has led to a slowdown in business growth such as credit guarantee insurance. The premium growth rates for credit guarantee insurance, corporate financial insurance, and liability insurance in April were -25.3%, -15.3%, and -1.2%, respectively. Looking at the whole year, as government business selection progresses in an orderly manner and China's economy continues to recover, the company's non-car insurance business is expected to achieve large single-digit growth. As for non-car insurance COR, as existing corporate business risks are cleared, the company continues to consolidate its business foundation, and the enabling effects of risk reduction services gradually become apparent, we expect the company's non-car insurance COR to further improve to around 99% in 2024.
Profit Forecasts, Valuations, and Ratings
As the company continues to focus on high-quality development, COR is expected to continue to improve in 2024. The year-on-year improvement in combined investment income is expected to support the increase in net profit, and the company's ROE is expected to reach more than 12%. We expect the company's net profit to be 282/314/333 billion in 2024-2026, with corresponding growth rates of 15%/11%/6%, respectively. Due to the company's scarce business model and high ROE, we have given a target price of HK$13.0, maintaining a “buy” rating.
Risk warning: Market competition has intensified, natural disasters have exceeded expectations, and the capital market has fluctuated greatly.