CPIC announced 1Q20 financial results. GWP increased 2.2% YoY, among which life -1.1% while P&C +10.4%. Net profit rose 53.1% YoY to RMB 8.39bn thanks to an increase in investment income and reduction in underwriting cost. The Group’s life business was under pressure in 1Q like peers. However, improving agent quality during the past and orientation towards value creation bode well for business recovery in 2Q and onward.
- Result highlights. 1) Robust investment performance. Although capital market volatilities incurred fair value loss of RMB 83mn on trading securities vs. RMB 1.07bn positive gain in the same period last year, we believe realized gains on equity securities as well as dividend and interest income remained robust to boost net profit. Net investment yield and total investment yield recorded 4.2%/4.5%, down 20bp/10bp YoY, respectively. 2) P&C premium growth increased 32.5% for non-automobile insurance since the Company accelerated online sales and services and developed innovative health and liability insurance to capture demand.
- Result negatives mainly involved life business growth, whcih decelerated more than expected. Individual channel FYP declined 31.1% while FYRP dropped 37.7%. The Company did not announce NBV growth in 1Q report. However, since NBV margin may go down a bit due to product mix shifting towards shorter term during the onset of COVID-19, we estimate NBV decline in 1Q20 could be worse than FYRP decline. We expect with the containment of COVID-19, life FYRP growth will gradually resume in 2Q.
- Increased shareholding by Shanghai SASAC. The third largest shareholder of the Company, Shanghai State-owned Assets Operation Co., Ltd. has accumulated 42.3 million shares during 1Q20, increasing its shareholding from 5.58% to 6.05%, after Shenergy Group (14.64%) and Hwabao Investment (14.17%). This move indicated Shanghai SASAC’s confidence in CPIC over the long run. We also believe the Group will be able to embrace more opportunities arising from Shanghai’s SOE reform and integration of the Yangtze River Delta Region.
- Reiterate BUY. We maintain financial forecasts and TP unchanged. The stock has rebounded over 23% since our previous update on 23 Mar. The H-share is now trading at 0.46x FY20E P/EV, which we think has priced in the worst 1Q. Maintain BUY.
