NCI announced 1Q20 results on 28 Apr. GWP increased 34.9% YoY to RMB58.2bn, net profit rose 37.5% YoY to RMB 4.64bn thanks primarily to increase in investment income as well as reduction in admin expenses. Investment assets was up 7.0% from YE19 while total investment yield was 5.1%, up 0.9ppt from the previous year.
- Robust regular premium growth. Individual channel FYRP increased 12.3% to RMB 6.19bn, outpacing peers. This was mainly attributable to earlier preparation for the kick-off season in terms of product, sales promotion and agent team building. Total agent headcount increased 31%, or by 121 thousand over 2H19 to 507 thousand at YE19, which laid a solid foundation for business growth in 1Q20, particularly in Jan. Meanwhile, the bancassurance channel posted FYRP growth of 17% YoY. The Company also recorded RMB 11.1bn FYSP from bancassurance as a result of firm strategy to acquire more customers via single premium products.
- Reinforced Investment. Total investment yield was 5.1%, up 0.9ppt YoY and boosting investment assets by 7% compared to YE19. In spite of fair value loss of RMB 1.5bn in 1Q20 vs. RMB 595mn gain in 1Q19, P&L investment income increased ~40% to RMB 10.3bn YoY. We think the increase mainly came from dividend income and realized gains on trading securities as well as last year’s relatively low base.
- Major concerns and risks. 1) NBV margin pressure. Although regular premium growth outpaced peers, NBV margin may face downward pressures and single premium products carried much lower margin; 2) Quality of bancassurance business over a longer time span. It is likely that bancassurance single premium products could lead to higher surrender rate in the following years.
- TP unchanged at HK$ 37.30. Reiterate BUY. Overall speaking, the Company’s performance in 1Q20 was solid. Earlier preparation in products, sales and agent team has provided buffer against negative impact from the COVID-19. We maintain our forecast and TP unchanged at HK$ 37.3. Reiterate BUY.
