NBV down 13.8% yoy in 1H22; Overall results in-line
Resilient performance expected for China Life in 2H22
Valuation undemanding; maintain BUY
1H22 results in line with expectation
1) Shareholders’ net profit dropped by 38% yoy in 1H22, partly due to investment performance relating to the gloomy capital market in 1H22. In details, the annualized gross investment yield was 4.21% in 1H22, vs. 5.69% in 1H21. Total comprehensive income dropped by 49.0% yoy in 1H22. 2) Total NBV dropped by 13.8% yoy in 1H22, and NBV margin on total FYP came in at 18.5%, vs. 22.3% in 1H21. Savings products are increasingly popular in 1H22 facing the weakened insurance demand. 3) Total number of agents in the individual agent business sector slipped in the 2Q22, which was 746k at end-1H22 vs. 820k at end-2021 (or 780k at end-1Q22). However, agent productivity measured by per-agent NBV increased by ~29% yoy in 1H22. 4) The Company maintained high solvency ratios under the C-ROSS (Phase II) Regulation implemented since 1Q22.
At end-1H22, the core and comprehensive solvency ratios of the Company were 169% and 236%, respectively, well above the critical levels. 5) Overall, the Company’s 1H22 results were in line with our expectation, and are expected to outperform major peers.
Resilient 2H22 performance expected; Attractive valuation in long term view
China Life, as a leading life player, is likely to show resilient performance in 2H22. The Company actively explored sales system reform, aiming at building a more professional and digitalized sales force, and the Company achieved enhanced agent productivity in 1H22 (vs. 1H21). We expect its NBV to contract by ~8% yoy in 2022E (vs. -13.8% yoy in 1H22), outperforming peers. Currently the Company is significantly undervalued.
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 taking into account the property-related risks.
Valuation undemanding; Maintain BUY on valuation
China Life is trading at ~0.21x 22E P/EV or ~0.55x 22E P/B. Valuation is attractive. China Life remains our top pick of the life insurance sector.
Slightly revised 22E NBV forecasts (Fig. 2). Maintain BUY on valuation and its better-than-peer performance. Maintain TP at HKD17.7, 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.