Core views

Driven by a reduction in scheduled interest rates and a rebound in the stock market, the company performed well on both sides of the capital deficit in the third quarter. Looking ahead, the company is steadily advancing the reform of the marketing system, deepening the transformation of the existing team to specialization, professionalization and integration, consolidating the steady trend of sales force size, and the team production capacity is expected to continue to be optimized, laying a solid foundation for debt-side business growth. The company actively promoted product diversification and diversification of business forms. In the first three quarters, the share of new orders with a term of 10 years or more accounted for +4.3pct to 46.4% year-on-year, and debt quality was continuously optimized. On the asset side, the recovery in the equity market against the backdrop of a low base during the same period last year is expected to contribute to performance flexibility, and stabilizing long-term interest rates is expected to ease allocation pressure.

occurrences

China Life Announces Third Quarter 2024 Results

In the first three quarters, the company achieved net profit of +173.9% to 104.52 billion yuan, NBV +25.1% year-on-year, and total and net return on investment +2.57pct, -0.55pct to 5.38% and 3.26%, respectively.

Brief review

1. Overall performance: Total investment income driven strong profit growth in the first three quarters +173.9% to 104.52 billion yuan, and +1767.1% year-on-year to 66.25 billion yuan in the third quarter. The strong increase in the company's profit in the third quarter was mainly driven by a sharp year-on-year increase in total investment income. On the one hand, the total investment return base for the same period last year was low. The Shanghai and Shenzhen 300 Index accumulated -3.98% in the third quarter of last year. Under the complex and severe capital market environment, the company's total return on investment in the first three quarters of last year was only 2.81% (under the old standard). On the other hand, the stock market rebounded rapidly after shaking at a low level in the third quarter of this year. The Shanghai and Shenzhen 300 Index accumulated +16.07% in the third quarter, and the company's total investment income increased sharply over the same period last year.

2. Debt side: New orders grew strongly in the third quarter. In the first three quarters, NBV was +25.1% year-on-year, with premiums for new orders +0.4% year-on-year to 197.51 billion yuan, and futures accounted for +3.4pct to 57.3% year-on-year, and new orders with a ten-year period and above accounted for +4.3 pct to 46.4% of new orders over a period of 10 years or more. In the third quarter of the single year, premiums for new orders were +46.4% to 37.24 billion yuan, with futures accounting for +9.0pct to 42.7% year-on-year, and the share of new orders with a term of 10 years or more was -3.8pct to 62.6% year-on-year. The growth rate of new orders in the third quarter improved significantly compared to the first half of the year. It is expected that demand for residents' savings insurance will be released centrally due to successive cuts in scheduled interest rates for traditional insurance and dividend insurance.

Based on “Insurance Service Revenue - Insurance Service Expenses”, insurance service performance in the first three quarters was +1.4% year-on-year to 37.81 billion yuan.

The sales team size stabilized and consolidated, and the quality of the team continued to improve. By the end of the third quarter, there were 0.641 million sales people in the insurance sector, +1.1% compared to the end of the previous year and +1.9% compared to the end of the second quarter. The quality of the team has been effectively improved, the team structure has been continuously optimized, and both the size and proportion of highly performing manpower have been continuously improved. Monthly first-year premiums per person in individual insurance channels increased 17.7% year over year, and team production capacity grew steadily on a high basis. The pilot of a new marketing model for individual insurance progressed rapidly, and the “Seed Program” was piloted in 24 cities including Nanjing and Shenzhen, with initial results.

3. Asset side: The rebound in the stock market in the third quarter led to a sharp year-on-year increase in total investment income and a rapid rebound after the low stock market fluctuated in the third quarter of 2024, and the company's total investment income increased sharply year-on-year. In the first three quarters, net and total return on investment were -0.55pct and +2.57pct year-on-year, respectively, to 3.26% and 5.38%. Total investment income +152.4% YoY to 261.42 billion yuan, and net investment income +3.9% YoY to 144.71 billion yuan. Based on “total investment income - insured financial losses+financial income split from reinsurance”, investment service performance in the first three quarters was +921.3% year-on-year to 94.07 billion yuan.

Investment advice: Stable and high-quality sales force lays a solid foundation for debt-side growth. Improved resonance between the two sides of the asset and negative sides is expected to drive the company's performance growth, driven by a reduction in planned interest rates and a rebound in the stock market, and the company performed well on both sides of the asset and negative sides in the third quarter. Looking ahead, the company is steadily advancing the reform of the marketing system, deepening the transformation of the existing team to specialization, professionalization and integration, consolidating the steady trend of sales force size, and the team production capacity is expected to continue to be optimized, laying a solid foundation for debt-side business growth. The company actively promoted product diversification and diversification of business forms. In the first three quarters, the share of new orders with a term of 10 years or more accounted for +4.3pct to 46.4% year-on-year, and debt quality was continuously optimized. On the asset side, the recovery in the equity market against the backdrop of a low base during the same period last year is expected to contribute to performance flexibility, and stabilizing long-term interest rates is expected to ease allocation pressure. Based on the above analysis, we raised the company's profit forecast and target price. We expect the company's NBV growth rate in 2024/2025/2026 to be 24.9%/11.0%, respectively, giving the company a target price of 52.1 yuan for the next 6 months, corresponding to a PEV of 1.0 times in 2024, maintaining a “buy” rating.

Risk warning:

Debt-side reforms fall short of expectations: Currently, the company's life insurance business continues to deepen its transformation. If the quality of the company's agent team falls short of expectations, it may affect the company's new business value.

Long-term interest rates fall beyond expectations: If long-term interest rates decline more than expected, it will adversely affect the company's investment income.

A sharp decline in the equity market: If there is a sharp decline in the equity market, it will adversely affect the company's return on investment.

The recovery in residents' demand for insured products continues to fall far short of expectations: the new business value rate for insured products is generally high. If residents' demand for such products continues to be sluggish, it may have a negative impact on the company's new business value growth.