Bottom line: China Taiping FY24 results were broadly below expectations, despite better-than-expected NBV growth in 2H24. Net profit was well below GSe and Visible Alpha consensus, as life profit increased 12% yoy, compared to 28% for Ping An Life and 122-195% for its closest peers (based on profit alerts). Shareholders’ equity also declined 10% yoy, well below GSe/consensus. FY24 dividend was broadly in line with expectations, as payout ratio was reduced to 17% from 20% in FY23.
　　Life profit miss was driven by a combination of 1) elevated effective tax rate, at 45% for FY24, and 2) lower than expected pre-tax profit in 2H24 (HK$4bn vs. HK$15bn in 1H24), due to negative net investment results in 2H24. We would focus on the underlying drivers at the results briefing (Mar 25, 10am HK time), including 1) drivers of the high effective tax rate, and 2) investment portfolio performance, as total investment return was lower hoh, despite strong equity market performance in HK/China in 2H24.
　　Life NBV was ahead of expectations, +25% above GSe/consensus, but life EV was weaker than expected. Headline life EV was -16% yoy, due to a 26% impact from changes in investment return assumptions. This impact was larger than expected, based on FY23 sensitivities. We would also focus on drivers of this larger-than-expected impact, as well as management comments on CSM growth outlook.
　　Key numbers and takeaways:
　　FY24 NPAT was HK$7.4bn, +38% yoy but 26%/15% below GSe/VA consensus, mainly due to lower-than-expected life insurance net profit (-21%/-19% below GSe/consensus). In turn, the life profit miss was driven by a combination of 1) elevated effective tax rate, at 45% for FY24, and 2) lower than expected pre-tax profit in 2H24 (HK$4bn vs. HK$15bn in 1H24), due to negative net investment results in 2H24.
　　Elevated effective tax rate was similar to 1H24, +48% effective tax rate. The company attributed this to unrecognized tax losses, but didn’t provide additional information. We note that this could be related to non-recognized deferred tax assets related to HK$55bn tax losses (vs. HK$12bn in FY23), but would focus on additional comments at the results briefing.
　　Shareholders’ equity was HK$71.1bn, -10% vs. 1H24, mainly reflects negative impact of bond yield movement in 2H24, which more than offset the positive net profit.
　　Life NBV was HK$14.3bn, +90% on a like-for-like basis (i.e. under FY23 assumptions), and 25% above GSe/consensus. The NBV beat was driven by a 15pt margin expansion to 30%, including 26pt/9pt margin improvements in the bancassurance/agency channel.
　　Taiping updated its economic assumptions, as it reduced its long-term investment return assumption from 4.5% to 4%, and risk discount rate is also lowered from 9% to 8.5%. This reduced life EV/NBV by 26%/36%, respectively.
　　Life contractual service margin (CSM) balance was HK$206.9bn, down 2% yoy, as the 19% yoy increase in new business CSM was mostly offset by the HK$9bn negative impact from estimates change.
　　P&C combined ratio (COR) was 98.8%, -0.1pt yoy.
　　TPL core solvency ratio was 186%, +32pt vs. 1H24. P&C core solvency ratio was 172%, +15pt/+34pt vs. 1H24/FY23.
　　Agent headcount was 226k as of year-end 2024, -1% vs. 1H24 level.
　　Taiping declared a final dividend of HK$0.35 per share, +17% yoy. This implies payout ratio at 17%, vs. 20% in FY23.