China Life announced 9M19 set of result on 29 Oct 2019, which is highlighted by 1) net profit surge, mainly coming from investment gains and also from tax benefit; 2) satisfactory progress of underwriting business transition; and accordingly, 3) outstanding NBV growth. We stay bullish on the Company’s near-term financial performance for the whole year and its long-term outlook as well since business reform initiatives have been reviving the largest lifer in China profoundly.
- Net profit surged 190% YoY to RMB 57.7bn (~88% of our revised FY19E net profit), thanks to 1) investment gains. Investment income increased 88.2% YoY in 9M19 to ~RMB125.6bn according to our calculation. Realized gains and fair value gains from equity investment have contributed to the majority of improvement. 2) One-off tax benefit of RMB 5.2bn, deducting which net profit would increase164% YoY in 9M19.
- Life transition underwent satisfactory progress. 1) Premium structure continued to optimize, with longer payment durations and more protection-oriented products. FYRP with 10y+ payment duration accounted for 51.06% of FYRP in 9M19, up 15.7ppt YoY. The share of designated protection-oriented products increased 8.79ppt YoY. 2) Agent headcount maintained steady growth. As of 30 Sep 2019, individual agents amounted to 1.663 million, up 15.6% from YE18 and 5.7% from 2Q19. Monthly average productive agents increased 37.4% YoY.
- Solid NBV growth. New business value achieved 20.4% YoY growth in 9M19, outperforming major peers. The figure was largely in line with our annual NBV growth estimate at 16.4% (1Q/1H NBV growth was 28.3%/26.2%, respectively). Our growth forecast is slightly lower than 9M19 number due to a higher base in 2H18.
- Risks. 1) Capital market volatilities in 4Q; 2) Challenges with respect to agent team management and quality improvement.
- Raise TP to HK$28.26. We roll over valuation basis to FY20E. We raise TP to HK$ 28.26, which corresponds to 0.74x FY20E P/EV. The H-share stock is now trading at 0.51x FY20E P/EV, below historical average minus 1 STD. We remain bullish on the Company’s near-term financial performance as well as long-term business prospect. Reiterate BUY.
