Aiming at building a professional and specialized sales team
The Co. focuses on LT performance and downplayed jumpstart sales
Maintain BUY rating on valuationLife insurance business under pressure
CPIC’s results in the third quarter showed immense pressure on life business, in line with the performance across the life sector. In the third quarter of 2021, CPIC Life’s agent channel first year regular premium dropped by 39.8% yoy, and total number of life business agents should have significantly dropped. In contrast, CPIC’s automobile insurance premiums have resumed positive growth recently from a low base.
Latest company updates
Recently we had a discussion with the Company. On agent team: CPIC is now value-oriented, and the number of agents is not a major KPI for the Company.
Since 1H21, the Company has been actively reducing low-productivity agents, hence the drop in the number of agents is in our expectation. The Company’s goal is to retain the core sales force, and strive to recruit new agents that meet high standards. An oversized low-productivity agent team cannot contribute too much value, instead it is not sustainable and will negatively impact on service quality according to the Company. In short, CPIC now targets on building a professional, specialized, and digitalized sales team. On jumpstart sales: The Company has been downplaying jumpstart sales. CPIC has not mentioned the idea of jumpstart so far in the fourth quarter of 2021, and is still focusing on finishing the work arrangement of this year. In the Company’s view, the marginal benefits of jumpstart sales are getting lower and lower, and have negative impact on the follow-up services. Instead, the Company focuses on long-term performance, and is to be equipped by the new fundamental law and new systems, such as need-based sales system (NBS), activity volume manage system, recruitment platform, and customer management platform. On the proposed measures for administration of the sales of personal insurance products: The proposed consultation paper is broadly in line with the Company’s strategy. In terms of the proposed relaxation of bancassurance, CPIC was discussing exclusive cooperation with Bank of China; in terms of the proposed sales management by grade, the company currently has agent groups such as "core agents" and "high-performance agents".
Valuation undemanding; Maintain BUY
CPIC is trading at ~0.36x 21E P/EV and ~0.79x 21E P/B, or ~0.33x 22E P/EV and ~0.74x 22E 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 slightly lower than 1x (Fig. 6). Maintain BUY for CPIC on valuation, and maintain EV-based at HKD31.25, equivalent to 0.50x 21E P/EV, representing a ~30% discount to past 5-year avg. P/EV of 0.71x, or equivalent to ~1.1x 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.