Slower decline in NBV, down by 37.8% yoy in 3Q22
Enhanced agency force quality
Maintain BUY rating on valuation
　　NBV down by 37.8% yoy in 3Q22
　　Shareholder’s NP dropped by 10.6% yoy in 3Q22, partly due to gloomy capital market which affected investment performance. In more details, the annualized total investment yield was 4.1% in 3Q22, vs. 5.3% in 3Q21. Total comprehensive income attributable to shareholders dropped by 73.9% yoy in 3Q22. 2) Life insurance segment saw slower decline in NBV, in line with expectation. Total NBV dropped by 37.8% yoy in 3Q22, primarily due to weakened insurance demand and worsened product structure. Note that NBV growth showed improving momentum, which turned positive for 3Q. 3) Earlier in 1H22, the monthly average number of agents in the agent channel dropped to 312k at end-1H22 from 525k at end-2021 (or from 641k at end-1H21). CPIC emphasized that the agency channel continued with career-based restructuring. CPIC Life leveraged the new Basic Law, promoted the building of high-performing agent force, optimized the agent recruitment process, improved the training system, and achieved further enhancement of agency force quality in 3Q. 4) For P&C segment, automobile insurance premiums grew by 7.8% yoy and non-auto P&C premiums increased by 18.5% yoy. Aggregate combined ratio came in at 97.8% in 3Q22, down by 1.9pt 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 3Q22 results were positive, particularly a slower decline in NBV is in line with our expectation. We expect CPIC’s NBV to drop ~34% yoy in 2022E.
　　Valuation undemanding; Maintain BUY on valuation
　　CPIC is trading at ~0.19x 22E P/EV and ~0.44x 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 ~34% yoy in 2022E, given the worsened NBV margin and the agent force contraction. Maintain BUY on valuation, and maintain EV- based TP at HKD24.3, equal to 0.37x 22E P/EV or a 41% 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.