NBV growth to outperform peers
Shareholders’ NP of China Life 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. Total NBV dropped by 15.4% yoy in 3Q22, which outperformed major peers. At end-3Q22, the core and comprehensive solvency ratios of the Company were 161.93% and 230.26%, respectively, well above the critical levels. 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 ~12% yoy in 2022E, meaning a performance that is better than peers.
Agent quality improved; Jumpstart likely satisfactory
Major life players are seeking to build high-performing agent force. China Life’s total NBV dropped by 15.4% yoy in 3Q22, while its number of agents in the individual channel dropped by a larger ~26.5% yoy in 3Q22, indicating increased agent productivity under its strategy of ‘stabilizing headcount while seeking higher productivity’. We have positive view on China Life and the life sector, given: 1) Recently China issued a series of adjustment policies. For example, on November 11 and December 7, the State Council issued guidance to optimize and adjust COVID policies; on November 11, PBOC and CBIRC jointly issued a 16-point policy package, outlining financial support for the real estate market; China’s RRR was cut by 25 basis points, effective Dec. 5; and on December 6, the Politburo meeting urged to do a good job in "stabilizing growth, stabilizing employment, and stabilizing prices". Such policies might positively impact China’s life players’ investment performance in LT; 2) The jumpstart campaign is likely to be satisfactory, as insurance savings products might be increasingly popular as a result that deposit rates and return on banks’ wealth management products were lower.
Valuation appealing; Maintain BUY on valuation
China Life is trading at ~0.23x 22E P/EV or ~0.62x 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 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. Key catalysts: robust NBV growth, good investment performance, China’s recovery policies might impact capital market and in turn life players’ EV; Key downside risks: lower-than-expected NBV growth, adverse capital market.