China Life reported in-line 2020 results. NBV stayed largely flat YoY, beating industry peers. Net profit declined 13.8% YoY to RMB 50.3bn, mostly due to increase in insurance reserves and tax benefits in 2019. China Life has been progressing in technology deployment and strengthening sales force. We remain positive that deeper reforms will continue to be carried out by the Company.
- Results positives. 1) NBV in line and beat peers. Over the full year, NBV was RMB58.37bn, basically flat vs. RMB58.7bn in 2019. Agent channel NBV increased 1.2% to RMB57.7bn. 2) Business structure remained stable under adverse market conditions. Agent channel FYP increased 5.6% YoY and FYRP was up 3.7% YoY. NBV margin (APE-based) only edged mildly down by 1.3ppt to 48.4% for the individual channel. 3) Enhanced sales force quality. The Company adhered to the strategy of productive agents-driven business via tightening recruitment and management. Individual agent headcount was 1.378 million at YE20 vs. 1.745 million at YE19, whereas monthly average productive agents increased 9.7% YoY. 4) Administrative expenses ratio declined further to 4.68%, down 0.84ppt YoY, which reflected improving cost management of the Company.
- Results negatives. 1) Net profit decreased 13.8% to RMB 51.3bn mainly because of a) changes in discount rate assumptions resulted in an increase in insurance reserve, which reduced pre-tax profit by RMB 38.54bn, and b) pre-tax deduction of underwriting and policy acquisition costs adopted in 2019. 2) Net investment yield went down 27bps YoY to 4.34% and gross investment yield nudged up 6bps to 5.3%. Comprehensive investment yield went down 95bps to 6.33% due to fewer fair value gains of AFS securities were recognized in OCI this year.
- Valuation. We roll over valuation basis to YE21. We trim TP to HK$ 23.67 to reflect changes in financial estimates and valuation assumptions. The Company’s H-share is trading at 0.35x/0.32x FY21/22E P/EV. Maintain BUY.
