20230327-招银国际-中国财险-02328.HK-Remained_UW_profitable_in_2H22_6页_962kb

PICC P&C (2328 HK) FY22 Summary

Core Content

PICC P&C delivered strong underwriting (UW) performance in FY22, with a significant increase in UW profit and a notable improvement in the combined ratio (CoR). The insurer achieved a $579% YoY growth in UW profit, translating into RMB2.1bn UW gains in 2H22, compared to RMB3.9bn UW losses in 2H21. The CoR improved by 2.0pts YoY to 97.6%, outperforming the industry average of 99.0%. The UW margin improved for the fourth consecutive quarter, with 2H22 CoR at 99.1% and 4Q22 CoR at 100.7%.

Key Performance Metrics

• Auto Insurance:

  • UW profit increased by 69.4% YoY in FY22.
  • CoR declined by 1.7pts YoY to 95.6%.
  • Loss ratio dropped by 2.0pts YoY to 68.1%.
  • Premium income grew by 7.2% YoY in FY22 and 5.8% in 2H22.
  • The decline in loss ratio was attributed to improved risk pricing capabilities and reduced catastrophic loss events due to COVID restrictions.

• Non-Auto Insurance:

  • CoR declined by 2.8pts YoY in FY22, equivalent to -4.0pts in 2H22.
  • Key segments saw significant improvements in UW margin:
    • A&H: +2.2pts YoY, +3.3pts in 2H22.
    • Agricultural: +8.7pts YoY, +9.3pts in 2H22.
    • Commercial Property: +20.4pts YoY, +42.4pts in 2H22.
  • Liability and Credit Guarantee Insurance saw higher CoR, attributed to:
    • Long-tail effect of in-force business.
    • Increased personal injury compensation standards.
    • Changes in formation rate of NEP due to shifts in business structure.
  • Credit Guarantee Insurance loss ratio remained low at 45.6%, down 5pts YoY.

Valuation and Financial Outlook

• Valuation:

  • 12M forward P/E: 4.9x FY23E, below 2-yr/5-yr average of 5.1x/6.1x.
  • 12M forward P/BV: 0.6x FY23E, below 2-yr/5-yr average of 0.7x/0.8x.
  • Dividend Yield: Expected to rise to 8.2% in FY23E, and further to 10.5% in FY25E.
  • ROE: Expected to increase to 13.8% in FY23E, and further to 14.9% in FY25E.

• Earnings Growth:

  • Net Profit: Expected to grow from RMB22,360m in FY21A to RMB38,657m in FY25E.
  • EPS (Reported): Expected to rise from RMB1.01 in FY21A to RMB1.74 in FY25E.
  • Consensus EPS: Expected to increase from RMB1.36 in FY23E to RMB1.69 in FY25E.

• Premium Income:

  • Expected to grow from RMB396,997m in FY22A to RMB535,982m in FY25E.
  • Growth Rate: Expected to remain stable at 8.0% in FY23E and FY24E, before increasing in FY25E.

Key Viewpoints

• The underwriting margin continued to improve, driven by quality and efficiency rather than volume.
• The loss reserve ratio remained solid at 41.3%, indicating a thickened buffer for potential losses.
• Auto and Non-auto segments both showed improvement in CoR, with Auto leading the way in margin expansion.
• The stock is undervalued, with low P/E and P/BV multiples.
• The dividend yield is expected to rise, enhancing investor appeal.
• The ROE is projected to increase steadily, reflecting improved profitability.

Key Information

• Target Price: HK$12.44.
• Current Price: HK$7.57.
• Price Performance:
  • 1-month: +5.0%.
  • 3-month: +1.2%.
  • 6-month: -10.4%.
• Market Cap: HK$52,225.4m.
• Free Float: 31.0%.
• Auditor: Deloitte.
• Analyst Rating: BUY, with a 64.3% upside from current price.

Outlook for FY23

• The insurer is expected to continue outperforming the industry in terms of UW margin.
• The auto loss ratio may edge up due to recovery in business activities.
• The liability insurance CoR is expected to improve as the long-tail effect gradually phases out.
• The credit guarantee insurance loss ratio is expected to remain stable.

Summary

The insurer has shown consistent improvement in underwriting profitability and operational efficiency, with a reduced CoR and increased UW margin. The dividend yield and ROE are expected to rise in the coming years, enhancing value proposition. The valuation metrics suggest undervaluation, supporting the BUY rating. The stock is expected to outperform the market, driven by strong fundamentals and positive outlook.