NBV growth to outperform peers in 2022E
Agent quality improved; sector’s outlook is positive
Valuation undemanding; raise TP to HKD18.5 and maintain BUY
　　NBV growth to outperform peers in 2022E
　　Shareholders’ NP of China Life decreased by 35.8% yoy, and total comprehensive income was negative in 3Q22. 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. We expect its NBV to decrease by ~12% yoy in 2022E, meaning a performance that is better than peers.
　　Agent quality improved, benefiting long-term growth
　　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’, which might support its long-term growth.
　　Positive outlook on the asset side
　　In December, the Politburo meeting emphasized that "stability is the top priority and progress should be made in stability", and urged to do a good job in "stabilizing growth, stabilizing employment, and stabilizing prices". Business activities and consumptions are resilient during the Chinese New Year period, taking into account the spread of COVID pandemic after the loosening of COVID control policy.Meanwhile, accommodative policies on property, infrastructure and manufacturing should underpin business cycle to normalize. The potentially stabilized economic conditions might positively impact China’s life players’ investment performance.
　　Valuation is still 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. The resulted valuation suggests most risks have been priced in for China Life, indicating attractive valuation for long term investors.
　　Raising TP to HKD18.5; Maintain BUY on valuation
　　China Life is trading at ~0.27x 22E P/EV or ~0.24x 23E P/EV, valuation is undemanding. Maintain BUY on valuation and positive outlook. Raise TP by ~11% to HKD18.5, equivalent to ~0.31x 23E P/EV (~0.32x 22E P/EV previously applied), 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.