CPIC released 2019 interim results on 25 Aug. While life insurance did not present many highlights, its P&C business outperformed and investment progressed steadily. GWP increased 7.7% to RMB 220.4bn (Life +5.6% to RMB 138.4bn; P&C +12.5% to RMB 68.2bn). Net profit surged 96.1% YoY to RMB 16.2bn thanks to new tax-deduction policies (+~RMB 4.8bn) and equity investment gains. Excluding one-off items, net profit growth was 38.1%. Group embedded value climbed 8.6% from YE18.
- Result highlights. 1) The Group disclosed operating profit for the first time, which increased 14.7% YoY to RMB 13.61bn. This measure teases out one-off items and impact of assumption changes to monitor operation of lifers. 2) P&C achieved further improvement in underwriting margin with combined ratio going down 0.1ppt YoY to 98.6%. This was mainly attributable to non-auto insurance, of which combined ratio dropped 2.2ppt, offsetting 0.4ppt increase in that of auto insurance. The other two major P&C insurers both posted worsening underwriting margin of P&C business (combined ratio: PICC P&C +1.6ppt to 97.6% and Ping An P&C +0.8ppt to 96.6%). 3) Successful customer development. 15.7% more customers now hold >=2 policies with CPIC and avg. insured amount of critical illness increased 6.4%.
- Negatives and silver linings. 1) Life NBV went down 8.4% YoY due to both NBV margin contraction (-2.4ppt YoY) and slowdown in FYP growth (annualized FYP dropped -2.7% YoY). But negative growth reversed in 2Q to +0.8% YoY from -13.5% in 1Q, boding well for 2H19. 2) Agent team headcount shrank 11% to 796,000 whereas FYRP from individual agent channel dropped 10.1% YoY in 1H19. However, productivity measures remained largely intact and income per agent increased.
- Catalysts. 1) Life product upgrade in 2H19 to boost sales; 2) more established “Insurance + Services” branding to enhance customer experience.
- Maintain BUY. We trim TP to HK$ 37.12 to reflect weaker-than-expected life NBV growth. The stock is currently trading at 0.75x FY19E P/EV, above peers’ average (ex. Ping An). CPIC is our sector top-pick in 2019 and stock price has outperformed market. We maintain our positive view and regard the Company as a safe play in a volatile market.
