NBV dropped by 15.4% yoy in 3Q22
Enhanced sales force quality with gradually stabilized headcount
Maintain BUY on valuation, TP trimmed to HKD16.7
　　NBV dropped by 15.4% yoy in 3Q22, broadly in-line
　　1) Shareholders’ NP decreased by 35.8% yoy, and total comprehensive income was negative in 3Q22. The decrease in the profitability is partly due to the gloomy capital market which affected investment returns. In more details, the annualized gross investment yield was 4.03% in 3Q22, vs. 5.25% in 3Q21. 2) Total NBV dropped by 15.4% yoy in 3Q22, broadly in line with expectation. Number of agents in the individual channel further dropped by ~3.5% qoq from 745k at end-1H22 to 720k at end-3Q22, or dropped by ~26.5% yoy. Therefore, we see increased agent productivity in 3Q22 (vs. 3Q21) under its strategy of ‘stabilizing headcount while seeking for higher productivity’. The Company desires to transform its agent team to be more specialized, professional and digitalized. 3) The Company has maintained high solvency ratios under the C-ROSS (Phase II) Regulation implemented since 1Q22. At end-3Q22, the core and comprehensive solvency ratios of the Company were 161.93% and 230.26%, respectively, well above the critical levels.
　　Valuation appealing
　　China Life’s P/EV ratio will still fall short of 1x (Fig. 8) 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. 8) as China life has significant shareholdings in Guangfa Bank, and Guangfa Bank has loan exposure to the real estate sector.
　　Maintain BUY on valuation, TP trimmed to HKD16.7
　　China Life is trading at ~0.17x 22E P/EV or ~0.47x 22E P/B. Valuation is undemanding. Maintain BUY on valuation. Slightly revise TP from HKD17.7 to HKD16.7, 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. China Life, as a leading life player, 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 ~12% yoy in 2022, meaning a performance that is better than peers. 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.