CPIC reported +5.5% YoY growth in gross written premiums in 9M20 (CPIC Life +0.2% and CPIC P/C +15%). Net profit declined 14.3% YoY mainly due to taxes. Life business was still under pressure, but growth of P&C accelerated in 3Q and likely maintained good quality. Despite difficulties, CPIC progressed on its business model innovation of digitization, “insurance + health/elderly care” and etc, which will boost its competitiveness in the future.
- Life business still suffered, from COVID-19 and its aftershocks. Agency channel FYRP decreased 34.2% in 9M20 (-37.7%/-30.5%/-30.5% in 1Q/2Q/3Q). We believe NBV margin decline likely narrowed in 3Q thanks to higher-margin products sold in 3Q. CPIC Life also rolled out innovative products which integrated insurance with health management, elderly care services, among others as differentiation.
- P&C – accelerating premium growth in 3Q. P&C achieved +7.2%/30.9% YoY premium growth in auto/non-auto business lines in 9M20, above peers’ average. In particular, CPIC P/C seized opportunities from the recovery of new car sales, deepened channel integration and recorded +14.3% YoY increase in auto insurance premium, accelerating from 8.7% in 1H20. With the recovery of macroeconomic conditions, non-auto premium growth also accelerated quarter by quarter, up 33.2% in 3Q20 vs. 29.8% in 1H20. We believe underwriting margin of P&C business remained stable in 3Q.
- Steady progress in investment. Total investment yield was up 0.4ppt YoY to 5.5%, likely driven by equity investment gains, although net investment yield inched down 0.2ppt YoY to 4.6%. Asset allocation was largely stable, with the share of stocks and equity funds increasing 1ppt from YE19 to 9.3%. Group invested assets stood at RMB 1.6tn, up 12.7% from YE19.
- Launched of CPIC’s 5-year health care development strategy. In Sep, CPIC signed agreements with Ruijin Hospital in Shanghai to establish an Internet hospital. This represented only one of the initiatives CPIC has taken to cooperate with top-notch resources and promote integrated business model of insurance and health care.
- Valuation. We lowered NBV and some other forecast to reflect w-t-e life premium growth in 3Q. TP is lowered to HK$ 31.74. The H-share is now trading at 0.46/0.42 FY20/21E P/EV. Maintain BUY.
