Positive long term outlook for life players
Expect continued improvement in 2023E for CPIC
Valuation undemanding; Maintain BUY
　　Positive long term outlook for life players
　　NBV growth across the sector were under tremendous pressure in 2022, partly due to agent force contraction and NBV margin decline. However, the long- term outlook for China’s life insurance sector is more positive in our view: 1) Recently China issued a series of adjustment policies, which might positively impact on investment performance of 2023E. For example, PBOC and CBIRC jointly issued a 16-point policy package, outlining financial support for the real estate market; China’s RRR was cut by 25 basis points, effective Dec. 5; and the annual Central Economic Work Conference pursued steady progress while ensuring economic stability for 2023; 2) Major players have achieved enhanced sales force quality so far in 2022, which might support NBV growth for 2023; 3) Insurance savings products might be increasingly popular as deposit rates and return on banks’ wealth management products were lower.
　　Positive NBV growth of CPIC for 3Q; Marginal improvement might continue in 2023
　　NBV growth of CPIC turned positive for 3Q of 2022. Total NBV of CPIC dropped by 37.8% yoy in 3Q22, vs. down by 45.3% yoy in 1H22. The Company might show continued marginal improvement in 2023, given: 1) Enhanced agency force quality. The Company accelerated agency force restructuring towards career-based development, professionalism and digitalization, with gradually stabilized agent headcount. Its positive NBV growth for 3Q is largely driven by its new Basic Law, the NBS (needs-based selling) processes, and the cultivation of normalized selling based on activity management. 2) Potential improvement in sales. The Company plans to sell more high-margin products by leveraging on higher quality agent force. Besides, insurance savings products might be increasingly popular in the jump-start.
　　Valuation undemanding; Maintain BUY
　　CPIC is trading at ~0.26x 22E P/EV and ~0.63x 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). 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.