Marginal improvement expected to continue in 2023
The Company’s shareholder’s NP dropped by 10.6% yoy in 3Q22, partly due to gloomy capital market, which affected investment performance. Total comprehensive income attributable to shareholders dropped by 73.9% yoy in 3Q22. However, Life insurance segment saw positive NBV growth for 3Q. Life NBV dropped by 37.8% yoy in 3Q22 vs. down 45.3% yoy in 1H22. The Company expects continued marginal improvement in 2023, given: 1) per- agent productivity gains that the Company achieved in 2Q and 3Q. Such momentum is likely to build up as the quality-oriented agent transformation proceeds; 2) potential improvement of NBV margin. The Company plans to sell more high-margin products by leveraging on higher quality agent force; 3) a well-prepared jump-start. Currently, the Company’s preparation for the jump- start focuses on customers, including customer revisits, insurance policy alerts, and accumulation of new customers via new products. In October, the Company launched a long-term medical insurance product against cancer with return of premiums, which was well received by customers and agents, and sold 100,000 policies in the first week, helping both business development and the preparation of the Jump-start.
Enhanced agency force quality
The Company believes the positive NBV growth for 3Q is largely the results of: changes of agent behaviors driven by the new Basic Law, the NBS (needs- based selling) processes, and the cultivation of normalized selling based on activity management. The Company accelerated agency force restructuring towards career-based development, professionalism and digitalization, with gradually stabilized agent headcount. According to the Company, there is increasing growth of monthly average FYC per agent qoq, and productivity of new recruits within one year improved qoq.
Valuation undemanding; Maintain BUY
CPIC is trading at ~0.24x 22E P/EV and ~0.58x 22E P/B, valuation undemanding. Our test 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, CPIC’s current P/EV ratio is still lower than 1x (Fig. 7). We estimate its NBV to drop by ~34% yoy in 2022E.
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.