China Life reported 13.8% YoY decline of VNB for 1H22, slightly narrowing from 14.3% YoY decline in 1Q22. New business premium growth showed a turnaround in 2Q22, as the insurer’s first-year premiums (FYP) and first-year regular premiums (FYRP) growth turned positive to +22% YoY and +17% YoY respectively in 2Q22 (vs -2% YoY/ -4% YoY in 1Q22). Agency productivity continued to improve, while agent headcount is gradually stabilizing.
Bancassurance delivered strong FYP growth of +39% YoY in 1H22, driven by improving productivity of sales representatives. Net profit declined by 38% YoY to RMB25.4bn in 1H22, representing 58% of our FY22 forecast. Similar to peers, the earnings decline was primarily dragged by lower investment income amid market volatilities.
New business volume growth turned positive in 2Q22. The insurer’s new business premiums growth finally picked up in 2Q22, after declining for seven consecutive quarters. FYP APE grew 18% YoY in 2Q22, up from the 4% YoY decrease in 1Q22, while FYP and FYRP also recorded double digit growth in 2Q22. FYP contribution from FYRP with 10 years+ payment duration edged up 0.1ppt YoY to 21.7% in 1H22, reflecting stable business quality.
Agency productivity continued to improve, while agency scale is gradually stabilizing. Agent headcount slid to 0.75mn at end-2Q22, down only 4% QoQ or 9% HoH, significantly narrowing from the double digit QoQ decline in 1Q21-4Q21. The management highlighted that agent number edged down only 0.9% MoM in June 2022. On the other hand, agent productivity increased by 61% YoY on a FYP basis and +35% YoY on a VNB basis, driven by improving retention rates and higher contribution from experienced agents.
We expect the agent headcount to remain largely stable in 2H22 and FY23, and the agent productivity to further improve.
Valuation. China Life H is trading at 0.2x P/EV FY22E and 0.6x P/BV FY22E with operating RoEV at 11%. We think the downside from the current trough valuation is limited. Looking forward, we expect to see sequential improvement on new business momentum in 2H22 and FY23. Maintain BUY.