CPIC reported in-line 2020 results. GWP increased 4.2% YoY to RMB362bn (Life -0.3% YoY, P&C +11.2%). Net profit declined 11.4% YoY to RMB 24.58bn primarily due to change of tax policies and increase in insurance reserves. Group embedded value was up 16% YoY. While COVID-19 weighed particularly on life insurance business growth, CPIC exhibited overall resilience and embarked on long-term endeavors regarding health insurance, technology deployment and corporate governance.
- Results positives. 1) Operating profit increased 11.7% to RMB31.14bn, excluding short-term volatility and one-off items. 2) Maintained P&C underwriting profitability. Combined ratio of CPIC P/C was 99%, up only 0.6ppt and better than industry average. Auto insurance combined ratio remained stable at 97.9%, although some non-auto business lines, such as health and liability insurance, recorded temporary underwriting loss during the pandemic. 3) The Company raised dividend payout ratio to 50.9% (including RMB 1.2 per share cash dividend and RMB0.1 per share special dividend for 30th anniversary) to share growth of the Company with shareholders.
- Results negatives. 1) Amid aftershocks of COVID-19, NBV of life insurance business declined 27.5% YoY to RMB17.8bn. NBV margin went down 4.4ppt to 38.9% whereas FYAP decreased 19.1% YoY. 2) Persistency ratio of life insurance customers declined more abruptly in 2020, with 13-month and 25-month persistency ratios down 4.6/4.1ppt to 85.7%/85.1%, respectively.
- Fostering new drivers for long-term growth. 1) Deepening participation in the Healthy China Initiative. 2) Progressing in technology deployment and innovation. 3) Optimizing shareholder structure via GDR and paving way for better corporate governance. 4) The Company elected former CEO of AIA China, Mr. John CAI as CEO of CPIC Life during the 26 Mar Board meeting. We expect Mr. CAI will contribute to improving the sales agent force and overall enhancement of CPIC Life.
Valuation. We roll over valuation basis to YE21 and lift target price to HK$39.21 accordingly. The stock is trading at 0.5x/0.45x FY21/22E P/EV, with attractive yield at above 5%. CPIC remains our sector top pick. Reiterate BUY.
