China Life’s 2019 results were highlighted by outstanding NBV growth and net profit surge. Meanwhile, agent team progressed in both headcount and productivity. We remain bullish on the Company’s performance in 2020 and its transform initiatives are beginning to payoff. The Company also showed business resilience amid COVID-19. Historical-low valuation offers opportunity to accumulate.
- Result highlights. 1) Net profit surged 411.5% YoY (in line with positive profit alert), or +>360% YoY if deducting one-off tax benefit of RMB 5.154bn; 2) NBV rose 18.6% YoY (22.7%/13% in 1H/2H) to RMB 58.7bn, outpacing major peers, on back of FYRP growth (agent FYRP +6% YoY) and margin expansion (+3.1 ppt YoY in agent channel). Premium and product structure continue to optimize. 3) Stable and productive agent team. As of YE19, individual agents totaled 1.613 million, up 12.1% YoY/2.5% QoQ. Monthly average productive agents increased 34.9% YoY and 43.5% more agents are able to sell protection-oriented products. Solid agent team building has laid the foundation for premium and NBV growth in the future. 4) Total investment yield was 5.24%, up 1.95ppt YoY thanks primarily to net fair value gains and realized gains from equity trading.
- Risks and challenges. 1) Capital market volatilities may weigh on investment income and profit growth in 2020 on top of 2019’s high base. 2) Net investment yield edged down 3bp to 4.61% in 2019. Though being relatively stable, NIY may face further downward pressure in 2020. To boost yield, the Company has increased proportion of stocks and funds (to 11% at YE19), as well as non-standard assets.
- Showed resilience against COVID-19 impact. The Company achieved 22.6%/9.9% YoY premium growth in Jan and Feb of 2020, respectively. Cumulative growth was 20.5% YoY in Jan-Feb, outpacing major peers.
- Reiterate BUY. Due to market volatilities amid COVID-19 panic, we revise up CoR assumptions and thus trim TP to HK$24.95, which corresponds to 0.62x FY20E P/EV. The Company’s H-share is now trading at 0.36 FY20E P/EV, which we think grossly deviates from firm fundamentals and should have more-than-necessarily priced in the worst scenarios.
