NBV dropped 14.3% yoy in 1Q22
Sales force quality improved in 1Q22
Valuation undemanding; maintain BUY on valuation
NBV slightly better than expected; agent quality improved
1) Shareholders’ NP decreased by 46.9% yoy, and total comprehensive income was negative in the first quarter of 2022. The decrease in the profitability is mainly because of a high base in 1Q21 and the gloomy capital market in 1Q22 which affected investment returns. In details, the annualized gross investment yield was 3.88% in 1Q22, vs. 6.44% in 1Q21. 2) Total NBV dropped by 14.3% yoy in 1Q22, slightly better than expected if taking into account of agent force contraction and the recent COVID-19 outbreak. Number of agents in the individual channel further dropped by ~5% qoq from 820k at end-2021 to 780k at end-1Q22, or dropped by ~39% yoy from 1,282k at end-1Q21. Therefore, we see increased agent productivity in 1Q22 (vs. 1Q21) under its strategy of ‘productive agents-driven business’. The Company desires to transform its agent team to be more specialized, professional and digitalized. 3) The Company maintained high solvency ratios under the C-ROSS (Phase II) Regulation implemented since 1Q22. At end-1Q22, the core and comprehensive solvency ratios of the Company were 176.39% and 247.60%, respectively, well above the critical levels.
Management discussion
There is still complexity in economic environment and uncertainty in the outbreak of the COVID-19. The Company will focus on steady improvement of agent quality while keeping agent scale gradually stabilized. Currently there are improved productivity and increased average income in the agent team.
However, the management is still worried that the recent outbreak of the pandemic might negatively impact on sales activities in 2Q22 and destabilize the agent team. The management suggests that it is too early to make a prediction about the full year’s performance such as whether business growth will turn positive at end-2022.
Valuation undemanding; maintain BUY on valuation
China Life is trading at ~0.19x 22E P/EV or ~0.50x 22E P/B. Valuation is undemanding. China Life’s P/EV ratio will still fall short of 1x (Fig. 8) if we assume its entire VIF is zero and further assume a valuation discount equivalent to 5% of its investment assets. Maintain BUY on valuation. Slightly revised up 22E NBV forecast on better than expected 1Q22 results (Fig. 2).
Slightly revise TP from HKD18.2 to HKD18.3, equivalent to ~0.32x 22E P/EV, or 40% discount to its past 5-yr average P/EV. Key catalysts: robust NBV growth, good investment performance; Key downside risks: lower-than- expected NBV growth, adverse capital market.