NCI reported mixed 1H20 results. While premium growth was robust and industry-leading, NBV decreased 11.4% due to margin decline. Investment performance was satisfactory and EV rose 9.6% from YE19. Although 1H20 revealed challenges amid COVID-19, the Company restated its strategic plan to pursue balanced growth of both volume and value, which bodes well for new business generation in 2H20 and onward. We revise up EV estimate and raise TP to HK$ 41.60. Maintain BUY.
- Result positives. 1) Robust and strong premium growth against adverse market conditions. Individual channel FYRP from long-term insurance business rose 8.3% YoY to RMB9.8bn. Bancassurance achieved +38% YoY growth in FYRP and 133.8% YoY growth in premium income driven by single premium products. 2) Steady growth of investment income. TIY edged up 0.4ppt to 5.1% on back of thicker realized gains of equity securities although NIY declined. Investment assets rose 7.3% from YE19 to RMB 900bn; 3) EV rose 9.6% from YE19, of which positive operating experience variances coming from improving 13-month persistency ratio and change of risk discount rate were the primary drivers.
- Result negatives. 1) NBV declined 11.4% YoY to RMB 5.22bn due primarily to margin pressure. NBV margin on FYP basis shrank from 37.9% in 1H19 to 15.3% in 1H20, which offset expansion in FYP. This was mainly attributable to a larger share of shorter payment products sold in 1H20. 2) Agent productivity and qualified rate declined although agent team expanded 4% from YE19. Challenges remain in 2H20 regarding training and retain of new agents.
- Stick to balanced development strategy. Although NBV growth missed expectation in 1H20, the Company restated its strategy of simultaneously boosting business volume and value growth via continuous product structure optimization (health insurance, annuity insurance and riders) and channel optimization. The Company will shift focus to value-oriented products in 2H20 in chase for NBV growth.
- Valuation. We revise up EV estimate to reflect b-t-e EV growth in 1H20. TP is therefore raised to HK$ 41.60, which corresponds to 0.5x FY20E P/EV. Maintain BUY.
