Judging from the experience of leading global financial insurance companies, (1) there is a significant positive correlation between PB valuation level and ROE. For example, Advance Insurance's ROE increased from 17.8% in 2015 to 26.5% in 2018, PB increased from 2.1X to 3X, Allstar's ROE increased from 10.6% in 2015 to 21.7% in 2019, PB valuation increased from 1.07X to 1.35X, and short-term ROE decline will not affect the central valuation level; (2) Most of the leading overseas financial insurance companies in recent years The ROE is at least two digits, and the corresponding PB is 1X or more; (3) Changes in ROE are affected by the growth rate of premium income, underwriting profit, and investment. (Reported exchange rate HKD/CNY=0.925)
Looking ahead, China's financial insurance ROE for 24-26 is 11.3%-12%. (1) Premium expectations: In terms of car insurance, motor vehicle ownership is growing steadily, and people's insurance is expected to increase the amount of coverage with brand and service advantages. In the short term, the average vehicle premium reduction is expected to bottom out. Looking at a combination of factors such as the business structure (increase in the share of new energy vehicles) and the increase in insurance coverage of the three, average vehicle premiums are expected to increase by 5%-6%; the improvement of non-car insurance benefit policies and the awakening of residents' risk and legal awareness is expected to increase 7%-COR (2); Expectations: risk reduction+new energy vehicles Insurance pricing optimization boosts the optimization of the payout rate of People's Insurance and financial insurance, while changes in the integration of reporting and sales channels are expected to promote the optimization of the cost rate of People's Insurance's financial insurance. It is expected to be 97.2%, 97.3%, and 97.1% respectively in 24-25; (3) Investment return expectations:
Considering the decline in long-term interest rates but increasing the allocation of high-dividend assets, the expected return on investment ranges from 3% to 4%, assuming 3.5%, 3.4%, and 3.4% for 24-25, respectively.
Reviewing the historical financial insurance market in China, ROE is the core driving factor for achieving excess returns. Absolute returns were achieved in 14 years during the 21 years of listing, and 13 years compared to the Hang Seng Index, achieved excess returns.
Profit forecast and investment advice: EPS is expected to be 1.28/1.32/1.48 per share for 24-26, giving the company 1.1XPB for 24 years, a reasonable value of HK$13.05 per share, giving it a “buy” rating.
Risk warning: Frequent natural disasters, increased competition affects cost rates, and premium growth falls short of expectations.