NCI reported satisfactory 2020 results amid adverse market conditions and made progress toward balanced growth of both value and scale. In addition to above-average NBV growth, NCI’s annual results were also highlighted by advancing asset management business and expanding agent team. While market conditions remain challenging in 2021, we think NCI is geared for faster growth in value-oriented insurance products and investment performance.
- Results positives. 1) Resilient FYRP growth. FYRP from long-term insurance business rose 4.8%/125.9% for individual agent/bancassurance channels, respectively. 2) NBV growth turned positive in 2H20. NBV decreased 6.1% YoY (-11% in 1H20 but +1.9% in 2H20), which was better than industry average. 3) Upon optimizing agent recruitment criteria and implementing the new basic law, the Company’s agent headcount reached record high at 606,000 at YE20, or +19.5% YoY. 4) Sound investment return. NCI achieved total/net investment yield of 5.5%/4.6%, +0.6/-0.2ppt respectively from the previous year. While maintaining steady gains in fixed-income investments, the Company seized structural opportunities in equity market and enlarged realized gains. In line with macro and market trends, NCI continued to reduce the share of non-standard asset investment to 25% at YE20 and is committed to “prudent, long-term and value-oriented” philosophy.
- Results negatives. 1) NBV margin declined notably, down 6.1ppt YoY to 30.4% based on first-year standardized premiums. This was mainly due to fewer high-margin health insurance products sold this year. As the sales of value-oriented products gradually recovers, NBV margin is likely to be stable this year. 2) The percentage of qualified agent and per capita productivity both went down in the reporting period due to reduced face-to-face communication with clients and NCI’s difficulties in the training and management of individual agents. We think agent team management may remain challenging in 2021.
- Valuation. We roll over valuation basis to FY21E and modified EV and other financial forecasts. TP is slightly modified to HK$41.52. The stock is now trading at 0.31x/0.29xFY21/22E P/EV. Maintain BUY.
