1H24 Group's net profit to mother increased 150% to 200% year-on-year

The company announced a pre-increase in performance on August 2. The net profit of 1H24 Group is expected to increase strongly by 150% to 200%. We think this may be due to improved underwriting performance and improved return on investment. The company's property reinsurance business saw significant underwriting improvements in 2023, and we expect this trend to continue in 1H24. Furthermore, investment performance may also have improved compared to the same period last year. We adjusted the 2024/2025/2026 EPS forecast to RMB0.18/0.16/0.19 (previous value RMB0.15/0.17/0.20). The net profit for the full year 2024 is expected to increase 34.9% year on year, and ROE is expected to increase by 1.7 pct to 8.0% year on year. The target price derived from the DCF valuation method was raised to HKD 0.85 (previous value 0.80) to maintain the “buy” rating. China Re Group's current stock price corresponds to 0.21x 2024E PB, which we believe is undervalued.

Improvement of overseas property reinsurance business underwriting

Property reinsurance includes domestic/overseas businesses. Overseas businesses include Bridge Company (Lloyd's business) and other overseas businesses, which have strong profitability and performed well in 2023. Overseas business accounts for about one-third of the total property reinsurance business, and underwriting performance is much better than domestic business. In 2023, the comprehensive cost ratio (COR) for domestic business was only 99.5%, while the overall COR for overseas business was only 85.7% (2022:94%). Among them, the COR for the bridge company business was as low as 81.9% (2022:93%), with excellent performance. We anticipate that underwriting performance in overseas operations may continue to improve, boosting overall property reinsurance performance. We expect the net profit of the property reinsurance business to increase 27% year-on-year in 2024, and the sector ROE to reach 9.7%, which is at an all-time high.

Life reinsurance is expected to grow

The company's life insurance reinsurance business was under pressure in 2023, and premiums declined year over year. We believe this trend is expected to reverse in 2024. Currently, market interest rates are declining, and the direct insurance market is facing challenges, but it may boost demand for reinsurance. The 1H24 investment market has performed relatively well, and is expected to increase the company's investment income and increase the return of the savings reinsurance business. We expect the company's life insurance reinsurance business to grow in 2024. We expect annual insurance business revenue to increase 7% year on year, net profit up 61% year on year, and ROE to reach 10.5%, which is also at an all-time high.

Direct property insurance business remains stable

The underwriting performance of the company's direct property insurance business (Land Insurance) improved in 2023, but it is still facing underwriting losses. We believe this is related to the competitive pattern in the property insurance market favoring large companies. We believe this segment of the business is expected to maintain steady growth. Insurance revenue is expected to increase 5% year over year in 2024, and underwriting performance is expected to improve slightly. We believe that investment performance is expected to improve. Net profit for the year increased 106% year over year, and ROE reached 3.1%, which is better than the performance of the past few years.

Risk warning: The premium growth rate has slowed sharply, and competition in the financial insurance market has led to a sharp deterioration in COR, and serious investment losses.