CPIC (2601 HK/601601 CH) announced 1H20 results on 23 Aug, which we think are largely in line with expectation. GWP increased 4.2% YoY to RMB 216.6bn in 1H20 (Life GWP +0.1%YoY; P&C GWP +12.4% YoY). Operating profit +28.1% YoY, although net profit shrank 12% primarily due to larger amount of tax paid in 1H20. The Company also made pragmatic moves to strengthen corporate governance, unleash Fintech capability, and set up health ecosystem development plans. All of these bode well for long term development.
- Life insurance suffered from COVID-19, but sequentially recovery was robust. In 1H20, NBV decreased 24.8% YoY whereas NBV margin shrank 2ppt YoY to 37%. Individual FYRP was down 35% YoY. Monthly average agent headcount decreased 3.8% YoY, but agent team upgraded. The share of active and high-performing agents reached 27% and 15.8%. In 2Q, life insurance achieved sequential recovery in terms of premium income and agent headcount, which was a favorable trend.
- P&C business beat in GWP growth and underwriting profitability. CPIC P&C achieved above-industry premium growth at +12.3% YoY (Auto +4%, non-auto +29.8%). Combined ratio improved 0.3ppt, in which expense ratio was reduced by 0.8ppt to offset higher loss ratio. Combined ratio of auto insurance +0.6ppt, thanks to reduction of both loss ratio and expense ratio. Non-auto combined ratio edged up 0.2ppt to 99.7%. However, some major non-auto business lines such as liability insurance and commercial property insurance achieved expansion in underwriting profitability.
- Investment business recorded steady performance. Total investment yield held up at 4.8% in 1H20, in which fixed income yield dropped a bit while equity investment yield improved from 1H19. Third-party AUM of CPIC AMC and Changjiang Pension maintained rapid pace of expansion, rising 38.4%/22.6% from YE19, respectively, to RMB269.6bn/442.2bn.
- Initiatives to strengthen long-run capability of the Company. 1) GDR issuance and diversification of board; 2) Set up of Fintech subsidiary; 3) Promoted SOE reform and designed new incentive programs for talents.
Valuation. We adjusted our forecast to reflect w-t-e life NBV decline in 1H20, tax policy’s disturbance on net profit, as well as b-t-e equity investment. We mildly adjust TP to HK$33.22 based on SOTP method, which corresponds to 0.63 FY20E P/EV. Maintain BUY.
