20180824-招银国际-中国太平-00966.HK-Effective_agent_team_mgmt._underpins_2H18_growth_6页_717kb

China Taiping (966 HK) Summary

Core Content Overview

China Taiping Insurance Group (966 HK) reported strong financial performance in the first half of 2018 (1H18), with a significant increase in net profit and gross written premium (GWP). The company emphasized effective agent team management as a key driver of growth in the second half of 2018, despite challenges in the life insurance business.

Key Financial Highlights

Net Profit and GWP Growth

• Net Profit: Rose by 120.3% year-over-year (YoY) to HK$5.2bn.
• GWP: Increased by 14.1% YoY to HK$130.1bn, with:
  • Life Insurance (TPL): Up 11.9% to HK$99.9bn.
  • Mainland Property & Casualty (P&C): Grew by 26.8% to HK$15.3bn.

Group EV per Share

• Group EV per share reached HK$37.4, up 7.2% YoY (or 11.2% on Rmb basis).

Earnings Table (YE Dec 31)

Key Metrics (YE Dec 31)

Life Insurance Performance

• NBV (New Business Value): Declined by 6.8% in 1H18, or 9.5% on Rmb basis.
• NBV Margin: Dropped from 32.5% in 1H17 to 29.3% in 1H18 on a APE basis.
  • Individual Business: NBV margin decreased by 2.4ppt to 32.8%.
  • Bancassurance: NBV margin fell by 11.2ppt to 7.4%.
• Positive Outlook for 2H18: Optimistic due to:
  • Improved agent management (agent headcount increased by 6.6% over YE2017; agent income up >20% YoY).
  • Enhanced product offerings and sales strategies.
  • Rekindled FYRP (First Year Renewal Premium) growth since 2Q18.
  • Relatively low base in 2H18.
• Risks: Less favorable currency environment may impact performance.
• NBV Forecast: Trimmed to HK$13.0bn for 2018, with a forecasted decline of 4.5% over the year.

Property & Casualty (P&C) Performance

• GWP: Increased by 22.1% in 1H18, driven by non-auto business growth (+58%) compared to auto (+18%).
• Loss Ratio: Rose by 4.1ppt YoY to 53.0% due to deeper auto insurance reform.
• Expense Ratio: Improved by 3.4ppt YoY to 46.5% due to better expense control.
• Combined Ratio: Increased by 0.7ppt YoY to 99.5%.
• Effective Tax Rate: Jumped to 60.7% in 1H18 from 44.1% in 1H17, due to increased fees and commission expenses.
• Regulatory Outlook: Management expects potential tax rate adjustments in the near future, which may lower the effective tax rate.

Valuation and Target Price

• Target Price (TP): Reduced to HK$34.50, down from HK$39.21.
• Valuation Assumptions:
  • Life Business: Valued at 1.04x FY18E P/EV, with assumptions of 15.5% RoEV, 15% RDR, and 2% terminal growth.
  • P&C Business: Valued at 1.2x FY18E P/B.
  • Other Business Lines: Valued at 0.8x FY18E P/B.
• Group P/EV: 0.87x for FY18 and 0.78x for FY19.

Share Performance

• 1-month: Down 5.7%.
• 3-month: Down 8.9%, but slightly better than the market at 0.3%.
• 6-month: Down 16.2%.
• Current Price: HK$25.20.
• Up/Downside: +38.0% from current price to TP.

Shareholding and Capital Structure

• Shareholding Structure:
  • China Taiping Group: 59.64%.
  • Free Float: 40.36%.
• Balance Sheet Highlights:
  • Total Investment Assets: Rose from HK$539,930mn in YE2017 to HK$641,966mn in FY18E.
  • Total Assets: Increased from HK$666,474mn to HK$774,837mn.
  • Shareholders’ Equity: Grew from HK$66,440mn to HK$70,499mn.
  • Total Liabilities: Increased to HK$688,125mn in FY18E.

Solvency and Operating Metrics

• Solvency Ratio:
  • TPL: 242% in FY18E from 246% in YE2017.
  • TPI: 214% in FY18E from 216% in YE2017.
• Operating Metrics:
  • New Business Value of TPL: Declined 4.5% in FY18E.
  • Embedded Value of TPL: Increased by 10.3% to HK$134,811mn.
  • Embedded Value of TPG: Rose to HK$141,745mn.
  • Net Investment Yield: Stabilized at 4.4%.
  • Combined Ratio of TPI: Increased slightly to 99.5%.

Analyst Recommendations

• Rating: BUY (Maintained).
• Target Price: HK$34.50.
• Up/Downside: +38.0% from current price.

Key Analysts

• Wenjie Ding, PhD
  • Tel: (852) 3900 0856 / (86) 755 2367 5591
  • Email: dingwenjie@cmbi.com.hk
• Hanbo Xu
  • Tel: (852) 3761 8725
  • Email: xuhanbo@cmbi.com.hk

Disclosures and Ratings

• CMBIS Ratings:

  • BUY: Potential return of over 15% over next 12 months.
  • HOLD: Potential return of +15% to -10% over next 12 months.
  • SELL: Potential loss of over 10% over next 12 months.
  • NOT RATED: Not rated by CMBIS.

• Analyst Certification:

  • The primary analyst certifies that the views expressed reflect personal opinions and are not influenced by compensation.
  • No trading in the stocks covered within 30 days prior to report release or 3 days after.

• Important Disclosures:

  • CMBIS does not provide individually tailored investment advice.
  • The report is for information purposes only and is not an offer to buy or sell securities.
  • Information is based on publicly available data and is not guaranteed for accuracy or completeness.

Additional Information

• Auditor: PwC.
• Website: www.cntaiping.com.
• CMB International Securities Limited:
  • Address: 45th Floor, Champion Tower, 3 Garden Road, Central, Hong Kong.
  • Tel: (852) 3900 0888.
  • Fax: (852) 3900 8000.
  • Affiliated with China Merchants Bank.

Conclusion

China Taiping demonstrated robust growth in 1H18, driven by improved agent management and investment income. Despite challenges in the life insurance business, the outlook for 2H18 is more optimistic. The company is valued at 0.87x FY18E P/EV, with a BUY recommendation and a target price of HK$34.50, indicating a +38.0% upside from the current price. However, the effective tax rate and currency environment remain key risks to monitor.