COVID-19 hindered the business performance in 1H22
Building a professional, specialized, and digitalized sales team
Maintain BUY rating on valuation
　　1Q22 result review
　　CPIC posted negative profit growth yoy in 1Q22. The decrease in the profitability is mainly because of a high base in 1Q21 and the gloomy capital market in 1Q22 that affected investment returns. CPIC’s agent force continued to scale down in 1Q22 and 2Q22. We estimate that its NBV might slump by ~40-50% yoy in 1Q22. The recent COVID-19 resurgence is expected to have a negative impact on CPIC’s performance, but its NBV growth is likely to stabilize in 2H22 given a low base from 2H21.
　　Business performance update
　　We held a discussion on the Company’s recent business performance.Impact of COVID-19: The company's life business mainly covered densely populated areas, including Henan, Shandong, Jiangsu, and Shanghai (Fig. 7). Since March, hundreds of its sub-branches have been affected by the COVID-19 resurgences, and sales in the second quarter will inevitably be affected. The company increasingly focused on its online platform, diversified its product mix, and emphasized online training of customer services, in order to maintain customer retention and prepare for post-pandemic sales.Agent team: The total number of agents of the agent channel is now between ~300k and ~350k, and might continue to scale down in the rest of the second quarter. The company de-emphasized the agent team size and did not really joined the ‘jump-start’ campaign this year. The company increasingly focused on the core manpower, which headcount has stabilized in the first quarter of this year. There was a low-teen growth yoy in the per capita productivity of its core manpower in 1Q22. The number of company’s MDRT also increased notably. CPIC again emphasized that, under its Changhang Action Programme, it would build an agency force featuring professionalism, career-based development, and digitalization, aiming at sustainable long-term growth.
　　Valuation undemanding
　　CPIC is trading at ~0.25x 22E P/EV and ~0.60x 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, and further apply a valuation discount equal to 5% of insurance investment assets on concern of property investment risk, its P/EV ratio is still lower than 1x (Fig. 6).
　　Maintain BUY
　　We estimate its NBV to drop by ~30% yoy in 2022, given the negative impact of the COVID-19 and the agent force contraction. Maintain BUY on valuation, and maintain EV-based TP at HKD25.2, equal to 0.35x 22E P/EV or a 45% discount to its past 5-yr average P/EV. Key catalysts: a good capital market, higher-than-expected NBV growth; Key downside risks: an adverse capital market, lower-than-expected NBV growth.