20241105-招银国际-中国人寿-02628.HK-3Q_NPAT_boosted_by_net_fair_value_gains__expect_resilient_full-year_NBV_upswing_7页_935kb

China Life (2628 HK) 3Q NPAT Significantly Improved, Full-Year Outlook Optimistic

This report analyzes China Life Insurance Company (HK) Ltd., a pure life insurer, highlighting its strong performance and positive outlook for the full year based on the latest financial results and forecasts.

Key Findings:

1. Strong Q3 Performance: 3Q NPAT surged 17.7x YoY to RMB 66.2 billion, outpacing most listed peers. This was primarily driven by net fair value gains (+80x YoY), boosted by the company's high exposure (second highest among peers at 11.2% of total investment assets by mid-2024) to FVTPL (fair value through profit or loss) core equities (stocks and equity funds) gaining in the equity market rally.

2. Elevated Profit Forecasts: The investment bank revises upward its FY24-26 earnings per share (EPS) forecasts by 148%/38%/31% to RMB 4.45/2.58/2.61 (excluding charges) for FY24, 25E, and 26E, respectively. This reflects both the strong Q3 investment performance and improved underwriting fundamentals. The rating remains "BUY".

3. Optimistic NBV Growth: 3Q NBV (New Business Value) grew 25.1% YoY (like-for-like), stronger than the 18.6% YoY growth seen in the first half. It is expected that margin expansion will continue to drive the full-year NBV uptick (forecasted for 17% YoY growth for FY24). Factors supporting this include lower PIR (Pricing Interest Rate) driving a focus on par products (potentially lowering liability costs), increased sales personnel productivity (agent count stabilized, productivity rose 17.7% YoY), and regulations curtailing commission costs providing margin upside through the agency channel. Longer-term policy term structures (FYRP with >10 years contributing 46.4% of FYRP in 9M24) also favorably contribute to lower surrender rates. The insurer expects a shift towards increasing sum-assured whole-life (IWLPs) and participating products for the FY25 sales push.

4. Valuation Update: The "Buy" recommendation is maintained with a 12-month forward Target Price (TP) raised to HK$20.00 (previously HK$15.50), implying a high FY24E P/EV (Price-to-Embedded Value) of 0.41x and P/BV (Price-to-Book Value) of 0.91x. The current valuation (FY24E P/EV 0.3x, P/BV 0.81x) appears attractive relative to the improved guidance. The TP increase reflects strong 3Q results and an improved underwriting outlook.

5. Key Risks: The outlook includes risks associated with the company's projected FY25 sales jump-start, potential volatility in the equity market, and prolonged low interest rates, which are expected to weigh on reinvestment yields and potentially reduce net investment income growth over the long term.

In Summary: The report concludes China Life delivered exceptional performance in Q3 aligned with the equity market rally, driven significantly by large net fair value gains due to its substantial holding of core equities. Improved underwriting fundamentals, particularly lower surrender costs stemming from sales stimulation via lower PIR and enhanced agency productivity, support continued NBV momentum. The strong performance justifies the new earnings forecast increases and the significant 21% Target Price increase. A rating of "Buy" is maintained based on the analysis, although key uncertainties exist.