China Taiping announced 2019 results on 27 Mar. GWP+11.7% YoY (TPL +13.6%, TPI +11.1%). Net profit +30.9% YoY, attributable to tax deductions and enhanced investment gains. Group EV to shareholders rose steadily by 14.8% YoY to HK$ 44.56 per share (EV of TPL +21.3%). However, NBV of TPL declined 18.8% YoY and NBV margin shrank, indicating a challenging 2020 ahead. We cut TP accordingly, but recent low valuation offers enough cushion and the Company lifted dividend payout ratio.
- Result positives. 1) Life GWP +13.6% YoY, above industry average growth. Underwriting quality remained steady with industry-leading persistency ratios. TPL’s FYRP +1.4%YoY. 2) Investment assets +23% YoY. The Company increased allocation in long-term equity investment and high-dividend stocks, which lifted NIY by 30bps to 4.72%. 3) Strengthening strategic client cooperation, contributing to premium and pension under management, as well as cross-selling initiatives to drive premium growth. 4) Breakthroughs in overseas business units making market influence. For example, TPL (HK) achieved FYP growth of +57.6% YoY. 5) Dividend proposed at HK$ 0.3 per share, up HK$0.2 YoY and boosting payout ratio to 12.2% from 5.4% in 2018. This makes investing in the Company more attractive, though dividend yield still lags peers’.
- Result negatives. 1) NBV -18.8%/-20.6% YoY on RMB/HK$ basis (-13.3%/-30.3% in 1H/2H on HK$ basis), below our estimate. NBV margin declined 7.6ppt to 28.4%. FYRP from individual agent channel declined 5.5% YoY. In 2020, downward pressures on FYRP and NBV margin are very likely to linger. 2) Number of individual life agents was 385,655 at YE19, down 24.8% YoY/18.2% HoH. Although high-productivity agents increased 13.1% YoY, the shrinkage in agent team could pose challenges for premium growth in 2020 against macro as well as industry headwinds.
- Cut TP to HK$ 20.54. We lowered NBV forecast for TPL to reflect FYRP growth and NBV margin pressures in 2020. We also revise up cost of equity assumptions given recent market volatilities. Therefore, TP is trimmed to HK$20.54. The stock is currently trading at 0.38x FY20E P/EV. Valuation is attractive. Maintain BUY.
