Zhong An’s reported net profit of RMB 490mn, surging 418% YoY to RMB 490mn thanks to narrowing underwriting loss and steady investment performance. Outlook on the Company’s tech business and health ecosystem upgrade also remained optimistic.
- Health and lifestyle consumption drove premium growth in 1H20. Overall GWP increased 14.7% YoY in 1H20. Health and lifestyle consumption experienced 115.6%/40.4% YoY growth on back of increasing awareness of health protection and penetration of online consumption. Travel, consumer finance and auto ecosystem experienced various extents of decline because of COVID-19 and the Company’s own strategy to cut loss-making business.
- Narrowing underwriting loss by ~RMB 230mn vs. 1H19 was the primary reason for net profit growth. Overall combined ratio improved 4.8ppt YoY to 103.5%, among which loss ratio improved 7.3ppt. Expense ratio worsened a bit as a larger share of sales (16% of overall GWP, or 1/3 of Personal Clinic Policy) was conducted through self platforms, which involve higher initial costs. Product structure change contributed to narrowing underwriting loss. Within each ecosystem, combined ratios were also trending favorably. For example, loss ratio of health and consumer finance decreased significantly because the Company cut group health insurance business, and tightened risk criteria for consumer finance underwriting.
- Technology business to benefit from accelerating digitization. Tech export recorded revenue of RMB 120mn, +26.2% YoY and net loss of RMB 107mn, narrowing 34% YoY. In 1H20, the Company has also set up ZA Bank, ZA Insure and established partnerships with global players. In post-pandemic era, we believe Zhong An’s technology business is likely to speed up with the digitization of the insurance industry.
- Health ecosystem to embrace “insurance + medical services” business model. The upgraded Personal Clinic Policy covers out-patients and emergency patients and provides 24-hour medical consultation via ZA Internet Hospital, drug delivery and other health management services. Such new models are likely to engage more customers for the Company.
- Raise TP. We revise up earnings metrics to reflect better underwriting performance than previously estimated. We also lift valuation multiple and raise TP to HK$ 49.92 based on 4.0x FY20E P/B. Reiterate BUY.
