20181218-招商证券_香港_-Life_insurance_premium_updates_and_outlook_5页_610kb

China Life Insurance Sector Summary

Core Content

This report provides an analysis of the performance and outlook for the China life insurance sector as of December 18, 2018. It highlights key trends in premium growth, valuation metrics, and investment recommendations for major players in the sector.

Key Points and Outlook

Premium Growth

• Ping An (2318 HK): Individual life FYP growth accelerated to 14.6% YoY in October-November 2018, up from 9.7% YoY in the third quarter. The report expects NBV growth to improve further in 4Q 2018.
• CPIC (2601 HK): NBV growth is expected to improve in 4Q 2018 due to the low-base effect from the previous year, which was impacted by regulatory changes (Circular No.134).
• China Life (2628 HK): Accumulated life GWP growth was 4.5% YoY in the first eleven months of 2018.
• NCI (1336 HK): Also expected to see improved NBV growth in 4Q 2018 for similar reasons.
• Health Insurance Premiums: Accumulated health GWP across the sector increased by 35% YoY in the first ten months of 2018, indicating strong demand due to the heavy health expenditure burden and insufficient insurance coverage in China.

2019 Outlook

• FYP Growth: The report anticipates slower FYP growth in 2019, as savings products are not competitive enough against banks' wealth management products.
• Renewal Premiums: Renewal premiums are expected to grow at a slower pace in 2019.
• Health Insurance Demand: Continued growth in health insurance demand is expected, driven by the high health expenditure burden and lack of insurance coverage.
• NBM and NBV: These metrics are projected to remain stable in 2019, supported by health insurance demand.

Sector Valuation and Investment Recommendations

Valuation Metrics

• The life insurance sector is trading at ~1.4 x 19E P/B, indicating a low valuation.
• Ping An (2318 HK) is trading at ~1.8 x 19E P/B or ~1.0 x 19E P/EV, both below its historical average, making it an attractive investment.
• NCI (1336 HK), CPIC (2601 HK), and China Life (2628 HK) are also at the low end of their historical valuation range, suggesting attractive long-term investment potential.

Investment Ratings

• Industry Rating: OVERWEIGHT — the sector is expected to outperform the market over the next 12 months.
• Company Ratings:
  • Ping An (2318 HK): BUY — target price HK$109, which is ~1.5 x 19E P/EV.
  • CPIC (2601 HK): BUY — target price HK$54.6, with ~106.8% upside.
  • China Life (2628 HK): BUY — target price HK$32.9, with ~99.6% upside.
  • NCI (1336 HK): BUY — target price HK$51.2, with ~55.2% upside.

Competitive Advantages

• Ping An (2318 HK) has a high-quality sales force with ~40% higher agent productivity compared to peers, attributed to its technology-equipped sales support and customer service.

Key Catalysts and Risks

• Key Catalysts:
  • Strong capital market performance.
  • Robust NBV growth.
• Key Downside Risks:
  • Adverse capital market conditions.
  • Lower-than-expected performance during the 2019 jumpstart season.

Sector Performance

• Absolute Return:
  • 1 month: -2.3%
  • 6 months: -14.1%
  • 12 months: -11.4%
• Relative Return:
  • 1 month: -2.0%
  • 6 months: -0.2%
  • 12 months: -1.9%

Analyst and Regulatory Disclosures

• The analysts certify that the views in the report reflect their personal opinions and that there is no financial conflict of interest.
• The report is subject to regulatory disclosures, including important information for UK and Hong Kong investors, and is not intended for general public distribution.
• It is not directed at non-Relevant Persons in the UK and is only for Investment Professionals or High Net Worth Companies.

Conclusion

The life insurance sector in China is expected to show improved NBV growth in the fourth quarter of 2018, with Ping An (2318 HK) leading the way. Despite slower FYP growth in 2019, health insurance demand is anticipated to continue rising, supporting NBM and NBV stability. The sector is undervalued relative to historical averages, with Ping An being the top pick due to its accelerated FYP growth and competitive sales force. Investors are advised to consult financial and tax professionals before making any investment decisions.