NCI released 1H19 results on 28 Aug. GWP increased 9.0% YoY to RMB 74bn and net profit surged 81.8% YoY to RMB 10.5bn thanks to tax savings and quality growth. Net investment yield maintained at 5.0% YoY while total investment yield declined 0.1ppt to 4.7% because of impairment loss. Embedded value rose 10.5% YoY to RMB 61.36 per share. Overall speaking, the Company went through management team transition and business lull in 1H19. However, clarified strategy will likely lead to better 2H19 and current valuation is attractive.
- NBV declined 8.7% YoY in 1H19. Individual agent channel FYRP declined 2.1% YoY. Margin pressure has been looming since 2H18. NBV margin for both individual channel and bancassurance channel experienced decline due to market competition and product strategy change. We expect NBV to grow 5.1% in 2H19, narrowing NBV decline for the whole year to 2.2%.
- Results positives. 1) NII was stable at 5.0% backed by successful allocation of fixed income assets, such as non-standard assets in previous years and local government bond in 1H19. 2) Individual agent headcount increased 4.3%, or 16,000 from YE18 to 386,000, lending support for sales force in 2H19.
- Firm strategy clarified to resolve market concerns. The new board and management team has decided to 1) pursue more balanced development of asset and liability and attach equal attention to both; 2) stick to protection-oriented products and enrich offering of pension products, medical care, term life in addition to critical illness products; 3) explore opportunities in long-term savings products to meet market demand; 4) enhance long-term equity investment.
- Catalysts in 2H19. 1) Upgrade of critical illness products and release of product pipelines depending on market demand; 2) expanded agent team to support sales; 3) firm strategy to focus on asset-liability match.
- Adjust TP to RMB 55.22. Maintain HOLD. Although NBV growth fell below our forecast, the Company recorded positive economic experience variances thanks to its investment performance, thus boosting EV to increase by 10.5% from YE18. We adjust TP to RMB 55.22, based on 40% premium to H-share TP. A-share stock is now trading at 0.78x FY19E P/EV. Maintain HOLD.
