NBV slumped yoy in 1H22, in line with expectation
Building a professional, specialized, and digitalized sales team
Maintain BUY rating on valuation
　　NBV slumped yoy in 1H22, in line with expectation
　　1) Shareholder’s NP dropped by 23.1% yoy in 1H22, partly due to gloomy capital market in 1H22. In more details, the annualized total investment yield was 3.9% in 1H22, vs. 5.0% in 1H21. Total comprehensive income attributable to shareholders dropped by 40.1% yoy in 1H22. 2) Life insurance segment was under pressure, in line with expectation. Total NBV dropped by 45.3% yoy in 1H22, primarily due to weakened insurance demand and worsened product structure. NBV margin on FYAP dropped from 25.4% in 1H21 to 10.7% in 1H22. 3) Monthly average number of agents in the agent channel dropped in the 1H22, which was 312k at end-1H22 vs. 525k at end-2021 (or 641k at end-1H21). CPIC emphasized that it will build an agency force featuring professionalism, career-based development, and digitalization. The monthly average FYP per core agent rose by 23.5% yoy in 1H22. The monthly average FYC per core agent reached RMB4,630, up by 10.8% yoy in 1H22. Agent productivity measured by per-agent NBV increased by ~12% yoy in 1H22. 4) For P&C segment, automobile insurance premiums grew by 7.9% yoy and non-auto P&C premiums increased by 17.6% yoy. Aggregate combined ratio was 97.2% in 1H22, down by 2.1pt yoy, partly driven by lower automobile insurance combined ratio. 5) The Company maintained satisfactory solvency ratios under the C-ROSS (Phase II) Regulation implemented since 1Q22, well above the critical levels. 6) Overall, the Company’s 1H22 results were in-line. We expect a slower decline in NBV in 2H22 for the Company. We expect CPIC’s NBV to drop ~36% yoy in 2022E.
　　Valuation undemanding; Maintain BUY on valuation
　　CPIC is trading at ~0.23x 22E P/EV and ~0.56x 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-related investment risk, its current P/EV ratio is still lower than 1x (Fig. 8). We estimate its NBV to drop by ~36% yoy in 2022E, given the negative impact of the COVID-19 and the agent force contraction. Maintain BUY on valuation, and maintain EV-based TP at HKD24.3, 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.