YTD NBV dropped by 19.6% yoy
Shareholders’ NP increased by 3.0% yoy, and total comprehensive income dropped by 11.5% yoy in the first three quarters of 2021. Profit growth slowed down in the third quarter, driven by changes in discount rate and investment incomes. 2) Total NBV dropped by 19.6% yoy in the first three quarters of 2021, vs. 19.0% in 1H21. NBV growth was under continuous pressure in the third quarter, partly due to weakened demand after the COVID-19 outbreak and partly due to decreased number of individual channel agents, in line with sectors’ performance. Number of agents in the individual channel dropped by 14.8% qoq, as the Company stuck to high quality development driven by productive sales force and tightened agent recruitment.
Management discussion
Challenges: The management suggests some challenges ahead for business development including: unsteady economic recovery after the COVID-19, recurring COVID-19 outbreak in some provinces and cities, which may affect off-line sales, demands for insurance products are more rational, downsized sales force across the sector, and a tighter regulatory environment. In response, the Company will pursue high-quality development of sales force and diversified products so as to consolidate its market-leading position. Risk exposures to property sector: Less than ~4% of investment assets were allocated to property sector, compared to the ~5% of Ping An Life. 1Q22 pre-sales: The Company expects some difficulties, but also believes it is well prepared for the 1Q22 pre-sales and has competitive advantage.
Valuation undemanding; maintain BUY on valuation
The Company's negative NBV growth in the third quarter of 2021 was in line with the deteriorated sector fundamentals. We revised down 21E NBV growth rate for the Co. (Fig. 2). China Life is trading at ~0.27x 21E P/EV or ~0.68x 21E P/B. Valuation is undemanding. China Life’s P/EV ratio will still fall short of 1x (Fig. 9) if we assume its entire VIF is zero and further assume a discount equivalent to 5% of its investment assets. Maintain BUY on low valuation. Maintain TP at HKD18.8, equivalent to ~0.37x 21E P/EV, or 40% discount to its past 5-yr average P/EV. Key catalysts: robust NBV growth, good capital market; Key downside risks: lower-than- expected NBV growth, adverse capital market.