Private insurance group of high growth potential and great scarcity. Led by Chairman Weigong Zhang, Sunshine Insurance Group put forward the strategy of "One Gathering, Three Strengths", focusing on improving core competencies of its insurance business: 1) Private ownership enhances operational vitality, and relatively small market share implies high flexibility and visible growth potential; 2) Senior management team has an average experience of 25+ years; 3) Comprehensive and balanced layout of insurance business focuses on value creation and innovation development; 4) Customer-centered insurance ecosystem is constructed to meet diversified needs.
Sunshine Life Insurance: resilient growth driven by stable scale of single premium bancassurance business. With continuous spread of Covid, fundamentals of the life insurance industry keep declining, while growth of new policies for Sunshine Life Insurance becomes a relative advantage. Thanks to support from new policies of single premium bancassurance business, channel contribution keeps increasing (1H22: 70.2%, vs. listed peers’ average: 22.5%). Increase in the proportion of installment payment boosts the overall growth of new policies and helps to achieve positive growth of NBV for two consecutive years. Channels of individual insurance focus on value transformation, with differentiated operation strategies and agency system to match demand and enhance team capacity. Sunshine prompted the top five products in recent three years to gradually transit from dividend-focused type to traditional life insurance, reverting to the nature of insurance. The NBV Margin (first-year premiums) (1H22: 8.35%, vs. listed peers’ average: 17.20%) is dragged down by high proportion of single premiums.
Sunshine Property Insurance: upside potential of ROE & increasing competitiveness of non-vehicle products driven by development of guaranteed insurance. Sunshine property insurance is in the second tier of the industry due to lack of economies of scale. Comprehensive reform of auto insurance continues to suppress the underwriting performance, while non-vehicle products contribute to premium increase, hopefully achieving positive underwriting profits in 2022 thanks to decreasing claim ratio. We believe the improvement of underwriting profitability and investment leverage are likely to drive up the company's ROE, hopefully increasing from 3.3% in 2021 to 11.7% in 2025. In terms of auto insurance, Sunshine continues to improve its pricing capacity by focusing on the mortality table in the fierce competition with top insurers. In terms of non-vehicle products, affected by macroeconomy and changes in customers' repayment ability & willingness in recent years, guaranteed insurance's COR is highly fluctuated and its business stability needs to be improved.
Sunshine Capital Management: leading investment performance and diversified management structure. Guided by the core principle of asset-liability matching, the company coordinates insurance business with strategic investment. Sunshine’s net ROI is higher than peers thanks to relatively small size and low pressure of asset shortage, while its volatility is higher due to the fluctuation of equity market and impairment.
Earnings Forecast & Rating: We expect its NP to be Rmb4.735/7.018/7.284/8.307bn in 2022-2025, with YoY growth of 19.5%/48.2%/3.8%/14.0%. We initiate with a Buy rating, with a target market cap of HKD66.177bn and upside potential of 26.5%.
Risks: 1) Competition towards bancassurance products; 2) Poor transformation of agency channels after the pandemic; 3) valuation & earnings suppressed by real estate risk.