China Taiping reported disappointing 1H20 results. Net profit decreased 57.3% YoY. Life business suffered NBV decline of 58.7% YoY. Group EV rose 5.4% YoY from YE19. Looking ahead, the Company aims for a better 2H20 and sequential recovery trend is encouraging.
- Net profit declined 57.3% YoY to HK$2.88bn, which was attributable to 1) Impairment loss under the Company’s prudent accounting policy, which mainly came from i) investment properties, of which rent was reduced to support SMEs; ii) equity investment in light of global market volatilities. Despite being booked as impairment loss, the Company mentioned that the underlying assets of these investments are still generating normal cash flow; 2) Last year’s tax-deduction policies; 3) HK$ 1.4bn loss of “associates and JVs” to reflect conservative revaluation of the Company’s Hong Kong property.
- Life business suffered. GWP decreased 4.2% YoY and FYRP from individual channel plunged 44.4% YoY, vs. our forecast of 30%. NBV declined 58.7% YoY in 1H20 on HK$ basis, while NBV margin of individual channel shrank 2.4ppt to 29.2%. Bancassurance contributed negatively to NBV because extended sales of short-payment duration products raised expenses.
- 2H20 guidance remained positive, backed by 1) sequentially improving premium income and NBV and 2) the Company’s proactive moves to boost value growth by focusing on value-oriented products in 3Q, introducing new monthly-payment annuity products, which achieved initial success in Jul, and adjusted KPI of subsidiaries in 2H20 and onward to incentivize value generation. We estimate NBV decline will narrow to 11.4%/29% in 2H20/2020.
- Result positives. 1) Robust investment. Total investment assets rose 11.8% YoY to HK$ 831.9bn. NIY edged down 31bp YoY to 4.29%, but TIY rose 62bp to 5.35% thanks primarily to gains on equity securities (~HK$ 5.4bn realized gains). 2) Combined ratio of mainland P&C business improved 0.2ppt to 99.6% and that of auto insurance improved 2.3ppt to 96.3%.
- Risks. 1) Life insurance recovery missed expectation. 2) Combined ratio of auto insurance hiked after the general reform.
- Cut TP to HK$ 18.12. We lowered NBV/EV forecast for TPL to reflect w-t-e 1H20. We also trim TP to HK$ 18.12, which corresponds to 0.41x FY20E P/EV.
