China Life delivered strong VNB growth of +19.9% in 1H23, beat market expectation given its more value-focus product strategy in traditional life and annuities amid the first-half trend in savings sales among peers. Despite an improved underwriting structure, the insurer’s net profit down by 8.0% in 1H23 （vs +17.8% in 1Q23）， translating to -24.4% in 2Q23, primarily hurt by investment loss given a bumpy equity market in 2Q23, We believe the interim NP pushback is in short-term, and expect the more balanced product and channel mix to drive the insurer’s long-term value growth amid an industry-wide product shift in 2H23.
　　Maintain BUY, with TP unchanged at HK$17.81, implying 0.4x FY23E P/EV.
　　VNB up 19.9% YoY in 1H23, beat market expectation. The insurer
　　delivered strong VNB growth in 1H23 to RMB30.86bn, representing +19.9% YoY growth, outpacing the market expectation given its more value-focus product strategy in traditional life and annuities when major peers shifting towards sales of savings policies, esp. under the recent regulatory change of guaranteed interest rate reduction from 3.5% to 3.0%. We think a more balanced product mix with endowment/whole-life/annuity each proportioning to 47%/37%/17% of total GWP will enhance the insurer’s market share at 20.2% in 1H23 （+0.1pct vs 2H22），and drive long-term value growth in 2H23.
　　NP -8.0% pushback by sluggish equity investment in 2Q23 and prudent
　　provisions for asset impairment. Despite strong momentum recovery as well as progressive structural improvement, the insurer recorded a 8.0% decline in net profit in 1H23, vs +17.8% in 1Q23, primarily due to a bumpy equity market in 2Q23 which dragged investment income, and RMB12.84bn impairment loss （+226% YoY） for FVTPL equity, netting off underwriting profits. Yet, noteworthily, the adoption of IFRS 9 & 17 smoothed the fall in net profit, given the new standards allowed: 1） asset reclassification with an OCI option to reflect impairments and fair value change into reserves （IFRS 9）， and 2） CSM absorption for chg. in discount rate assumptions （IFRS 17）， whereas NP was down by 36.3% YoY as disclosed in A-share report with the old comparable standard. We believe the interim NP pushback was more due to market fluctuations that led to challenges across the industry.
　　As the insurer continued to shorten the A/L duration gap to ~5 years, the risks on interest spread loss shall be plausibly avoided.