1H21 NBV down 8.9% yoy
To build professional agent team and focus more on “products+services” model to achieve better performance
Maintain BUY rating on valuation; cut TP to HKD31.5
1H21 NBV down 8.9% yoy, slightly below expectation
1) Shareholder’s net profit increased by 21.5% yoy and total comprehensive income dropped 4.5% yoy in 1H21, broadly in line with our expectation. 2) Average number of agents decreased by ~14.4% hoh in 1H21, partly due to natural loss and partly due to the Company’s effort to build a high- performance agent team. The total number of MDRT members has increased according to our previous discussion with the Company. 3) Life NBV decreased by 8.9% yoy in 1H21, slightly lower than we expected. Life NBM on FYAP shrank significantly. 4) For the P&C segment, combined ratio of auto insurance slightly worsened to 99.0% in 1H21 vs. 97.8% in 1H20. In summary, CPIC’s 1H21 results were slightly below expectation, but its NBV growth was still higher than some peers.
Management discussion
Life business quality and EV growth: Due to the negative impact from the COVID-19 and declining agent team scale, the past business developing model faced lots of challenges, which resulted in relatively lower quality of life business and a weak EV yoy growth in 1H21. Looking forward to the future, CPIC will pay more attention to build a professional and higher performance agent team, and to focus more on “products+services” model to achieve better performance. Auto: The loss ratio of compulsory auto insurance increased 14 ppts. Mgmt. indicated that 2021 is the first full-year of auto insurance reform, there are still a lot of uncertainties in this area.
Huiminbao: Per mgmt., the development of Huiminbao is a good opportunity to increase insurance awareness. Moreover, the demand for LT commercial health insurance may still be strong in mid-/high-end consumers. CPIC will focus on customer stratification to provide more matched products and services to clients.
Valuation undemanding; Maintain BUY
CPIC is trading at ~0.35x 21E P/EV, or ~0.76x 21E P/B, valuation undemanding. Our test further shows, if we eliminate CPIC’s entire VIF on the market’s concern that life insurers’ VIF assumptions will not be met, its P/EV ratio still falls short of 1x (Fig. 7). We revised financial forecast for CPIC (Fig. 2). Maintain BUY for CPIC on valuation. Revised down EV-based TP by 6.0% to HKD31.5 on slower NBV growth, equivalent to 0.50x 21E P/EV, representing a ~30% discount to past 5-year avg. P/EV of 0.71x, or equivalent to ~1.11x 21E P/B. Key catalysts: a good capital market, higher- than-expected NBV growth; Key downside risks: an adverse capital market, lower-than-expected NBV growth.