Summary. China Life announced 1H19 result on 22 Aug. GWP increased 4.9% YoY to RMB 377.98bn. Net profit increased 128.9% YoY to RMB 37.6bn, in line with previous profit alert (115%~135%). NBV posted stellar growth at 22.7% YoY, exceeding anticipation as well as peers, whereas EV rose 11.5% from YE18 to RMB 886.8bn mainly on back of b-t-e NBV growth and investment variances.
- Net profit surged thanks to satisfactory investment and new tax policy. The significant increase in net profit was primarily driven by, 1) non-recurring tax savings of RMB 5.15bn after adopting the new pre-tax deduction policy for insurance commissions and handling fees; 2) improvement in investment income, particularly regarding equity investment. Net realized gains and fair value gains in P&L was +RMB 16.9bn (vs. net loss of RMB 11.9bn in1H18). Annualized gross investment yield was 5.78%, up 2ppt YoY.
- Strong NBV growth of 22.7% YoY. NBV growth was above major peers’ according to our forecast (Ping An already announced 1H19 NBV growth at +4.7%). NBV margin increased 4.2ppt/7.9ppt for agent and bancassurance channel, respectively, thanks to optimizing business structure towards longer-duration and protection-oriented products. FYRP with 10y+ duration rose 68% to RMB 38.1bn, representing 45.8% of FYRP. Single premiums were reduced by nearly 90% to merely RMB 1bn.
- Agent team in a good shape. Headcount of individual agents expanded 9.3% from YE18 to 1.573 million. FYRP from agent channel rose 5.0% YoY. Bancassurance sales representatives reached 241 thousand and recorded 43.4% increase in active insurance planners. We expect integration of the Company’s insurance agents will progress steadily and lay a good foundation for FYRP and NBV growth in 2H19.
- Risks. 1) Ramp-up of agent activity slower than expected; 2) capital market volatilities weigh on equity investment performance.
- Lift TP; Valuation undemanding. Thanks to strong NBV growth and investment performance, we lift FY19E NBV and EV forecast by 2.0% and 1.3%, respectively. We therefore raise TP to HK$ 27.88. The H-share stock is currently trading at 0.56x FY19E P/EV, below peers’ average and historical avg. minus 1std. Attractive to accumulate.
