NBV growth to outperform peers; agent productivity improved
Gloomy capital market might impact profitability in ST
Valuation appealing; maintain BUY
　　NBV growth to outperform peers
　　China Life’s total NBV dropped by 13.8% yoy in 1H22, outperformed major peers.
　　Its NBV margin on total FYP came in at 18.5%, vs. 22.3% in 1H21. China Life, as a leading life player, is more likely to show resilient performance in 2H22. The Company actively explored sales system reform, aiming at building a more professional and specialized sales force, and emphasized technology-empowered development. We expect its NBV to decrease by ~8% yoy in 2022, meaning a performance that is better than peers.
　　Agent productivity improved
　　Total number of agents in its individual agent business sector slipped in the 2Q22, which was 746k at end-1H22 vs. 820k at end-2021 (or 780k at end-1Q22, Fig. 3).
　　However, agent productivity measured by per-agent NBV increased by ~29% yoy in 1H22, indicating increasingly sustainable business growth over the long term.
　　Gloomy capital market might impact profitability in ST
　　China Life’s 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. The capital markets (e.g. the CSI-300 index dropped by ~15% qoq in 3Q22) continued to be volatile in 3Q22, which might negatively impact the Company’s profitability in the short term. Per our sensitivity test, if market value of equity investment decreases by 10%, the negative impact on embedded value of China Life will be ~2.68% (Fig. 5).
　　Valuation appealing; Maintain BUY on valuation
　　China Life is trading at ~0.17x 22E P/EV or ~0.47x 22E P/B. Valuation is undemanding. China Life’s P/EV ratio will still fall short of 1x (Fig. 7) if: 1) we assume its entire VIF is zero; 2) we also assume a valuation discount equivalent to 5% of its investment assets taking into account real estate investment risks; 3) and we further apply a valuation discount (Fig. 7) as China life has significant shareholdings in Guangfa Bank, and Guangfa Bank has loan exposure to the real estate sector.
　　Maintain BUY on valuation. Maintain TP at HKD17.7, equivalent to ~0.32x 22E P/EV, or 40% discount to its past 5-yr average P/EV. China Life remains our top pick of the sector. Key catalysts: robust NBV growth, good investment performance, China’s recovery policies might impact capital market and in turn life players’ EV (Fig. 5); Key downside risks: lower-than-expected NBV growth, adverse capital market.