ZhongAn reported an earnings beat in FY24. Net profit was more than doubled to RMB 603mn (+105% YoY) in FY24, 39%/31% higher than our estimate/Bloomberg consensus if excl. the one-off income for disposal of Zhong An International at RMB 3.78bn in FY23. We see this attributable to 1) steady profit growth of insurance (+6.2% YoY) underpinned by strong investments; 2) tech export turnaround to RMB 78mn (vs FY23: a net loss of RMB 468mn); and 3) ZA Bank’s trimmed net loss to HK$ 232mn, down HK$167mn YoY. In FY24, CoR climbed 1.7pct YoY to 96.9%, as loss/expense ratio was up 1.5pct/0.2pct to 58.3%/38.6%. We estimate 2H24 CoR at 95.7%, +1.6pct YoY/-2.4pct HoH. Looking ahead, as tech segment and ZA Bank gain profit, we expect ZhongAn to capitalize on the domestic AI tide, and be able to deepen the moat of its Insur-Tech offerings, which in return should support a long-awaited re-rating. We expect ZA Bank to turn a profit in FY25, and see this breakeven as the next major catalyst for valuation upside. We change our valuation method from P/B-ROE to SOTP for anticipated contributions from a rapidly-growing tech export and banking segment. Maintain BUY, with new TP at HK$16.0, corresponding to 1.0x FY25E P/B and 23.0x FY25E P/E.
　　Technology export turned out of the red. In FY24, total revenue of tech export amounted to RMB 956mn, +15.3% YoY, whilst net profit arrived at RMB 77.6mn (vs FY23:-468mn), implying a net margin of 8.1%. To break down, we see the turnaround boosted by 1) elevated share of gains from associates and JVs at RMB 52.4mn (vs FY23: -RMB 119.6mn), and 2) a rise of net investment income (+246%) and other income (+45%) in FY24. As ZhongAn conducted tech export biz through ZhongAn Technology, ZhongAn InfoTech and Peak3, among which ZhongAn InfoTech and Peak 3 are accounted as the Group’s JVs, which explains the surging gains from new biz expansions in both domestic and global markets. Looking ahead, we think the segment will continue riding on the wave of IFRS17 transitions in China, which should boost sales of ZhongAn’s end-to-end solutions. Overseas expansion to EMEA markets is as well expected. As economies of scale accumulate, we expect the tech export segment to grow its profit at a 40% CAGR in the next three years, enhancing the earnings diversification.
　　Expect ZA Bank to break even in FY25E. ZA Bank’s net loss narrowed to HK$ 232mn in FY24 (vs FY23: -HK$399mn), implying a net loss ratio of -42%, improved 69pct YoY. Total revenue was HK$ 548mn, +52.6% YoY, driven by an 86.6% net interest income increase thanks to 1) an improved NIM to 2.41% (+0.47pct YoY), and 2) an increased loan balance to HK$5.78bn (+7.9%). As the only licensed Asian bank to provide fund, US stock, and crypto asset trading to retail investors, we think the bank’s edges in client base expansion (0.8mn by FY24), steady asset scale-up (+60.3% YoY), sufficient capital (CAR stable at 23.1%) and optimized cost-to-income ratio (-71pct YoY) will drive the breakeven to a slim profit of HK$0.8mn (CMBI est) in FY25E. Looking ahead, we think the bank’s revenue could stay relatively solid amid the interest rate cut cycle, based on a stable deposit structure inclined to longer-duration time deposits (65%) than savings (<3 mths).
　　Valuation. The stock is trading at FY25E 0.84x P/B and 20x P/E. We expect greater certainty on earnings and profit could help drive the valuation rebound, and ZA Bank’s breakeven as next major catalyst. We adopt the SOTP method to derive our new TP at HK$16.0, implying FY25E 1.0x P/B and 23x P/E. BUY.
　　Insurance eyes on Digital Lifestyle and Health growth. Total insurance revenue grew 15.3% YoY to RMB 31.7bn in FY24, among which Auto/Digital Lifestyle/Health/Consumer Finance was +28.4%/+26.8%/+13.2%/-13.2% YoY. Combined ratio rose 1.7pct to 96.9%, with loss/expense ratios up 1.5pct/0.2pct to 58.3%/38.6% in FY24. To highlight: 1) Health CoR surged 8.5pct to 95.7%, with loss/expense ratio up 4.8pct/3.7pct YoY to 39.0%/56.7%. The deteriorated loss ratio was due to a product mix change, and higher contributions from renewed policies; 2) Consume finance CoR dropped 6.3pct YoY to 90.1%, implying 2H CoR at 80.3% (-20.9 pct YoY), thanks to a proactive scale-down of loan business; and 3) Auto GWP increase (+29.8%) outpaced the industry average (+5.4%), with NEV premiums up 188.4% YoY, making up 12% of total auto GWP in FY24. Looking into FY25E, we expect underwriting profit (UWP) to turn to a positive increase on top of a low base.
　　Key risks: prolonged low interest rates; enlarged equity market volatilities; deteriorated underwriting CoR, and lower-than-expected tech export and banking segment profits, etc.