ZhongAn (6060 HK) Summary
Core Content
ZhongAn, listed on the Hong Kong Stock Exchange, is set to report its FY22 results on 21 March 2022. The company issued a profit alert, indicating a net loss of RMB1.3bn-1.5bn for FY22. This loss is attributed to a reduction in investment income due to the early adoption of IFRS 9, which was triggered by strong revenue and asset growth in the virtual banking and technology export segments. Despite the net loss, the report estimates that ZhongAn would have recorded a net profit of approximately RMB0.3bn in 2H22 if IFRS 9 adoption were excluded.
Main Points
- Profit Alert: ZhongAn reported a net loss of RMB1.3bn-1.5bn for FY22, primarily due to the impact of IFRS 9 adoption, which reduced investment income by RMB1bn-1.2bn.
- Early IFRS 9 Adoption: The insurance-related liabilities fell below 80% of total liabilities in 2022, leading to the early adoption of IFRS 9, one year ahead of IFRS 17.
- UW Margin Improvement: The underwriting (UW) margin improved in 2H22, contributing to a combined ratio of $98.6%$ for FY22. This improvement is expected to continue in FY23 with a projected combined ratio of $98.3%$ and a further improvement in the UW margin.
- Premium Growth: Premium income is expected to grow by over 20% YoY in FY23, driven by recovery in digital lifestyle and consumer finance segments.
- Valuation Metrics: ZhongAn is trading at 1.6x P/B and 1.0x P/S for FY23E. The company is projected to turn profitable in its virtual banking and technology export business by FY24E.
- Share Performance: The stock has shown mixed performance over different time frames, with a 1-month return of -20.8% and a 3-month return of 13.5%.
- Analyst Recommendation: The analyst reiterates a "BUY" recommendation, citing improved margins and potential for future profitability.
Key Financial Highlights
Earnings Summary
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Net Profit (RMB mn) |
554 |
1,165 |
(1,421) |
1,127 |
1,928 |
| EPS (Reported) |
0.38 |
0.79 |
(0.97) |
0.77 |
1.31 |
| Combined Ratio (%) |
102.5 |
99.6 |
98.6 |
98.3 |
98.2 |
Valuation Metrics
| Metric |
FY23E |
FY24E |
| P/B |
1.6 |
1.4 |
| P/S |
1.0 |
0.8 |
Shareholding Structure
| Holder |
Percentage |
| Ant Group |
13.5% |
| Tencent Computer System |
10.2% |
Financial Forecast
Income Statement
| Metric |
2019A |
2020A |
2021A |
2022E |
2023E |
2024E |
| Total Income (RMB mn) |
15,124 |
18,493 |
21,940 |
22,877 |
29,018 |
35,423 |
| Premiums Earned (Net) |
12,801 |
16,215 |
18,885 |
22,130 |
26,946 |
33,003 |
| Investment Income |
1,776 |
1,527 |
2,068 |
954 |
964 |
964 |
| Net Income |
(454) |
554 |
1,165 |
(1,421) |
1,127 |
1,928 |
Balance Sheet
| Metric |
2019A |
2020A |
2021A |
2022E |
2023E |
2024E |
| Total Assets (RMB mn) |
30,908 |
45,673 |
51,772 |
42,110 |
34,094 |
24,507 |
| Total Liabilities (RMB mn) |
14,402 |
28,280 |
32,642 |
24,438 |
15,178 |
3,433 |
| Total Equity (RMB mn) |
16,506 |
17,393 |
19,130 |
17,672 |
18,916 |
21,075 |
Profitability
| Metric |
2019A |
2020A |
2021A |
2022E |
2023E |
2024E |
| ROE (%) |
-3.0% |
3.6% |
7.2% |
-8.8% |
7.0% |
11.0% |
| ROA (%) |
-1.6% |
1.4% |
2.4% |
-3.0% |
3.0% |
6.6% |
| Combined Ratio (%) |
113.3% |
102.5% |
99.6% |
98.6% |
98.3% |
98.2% |
| Expense Ratio (%) |
45.9% |
48.4% |
42.0% |
41.1% |
41.9% |
42.0% |
Analyst Ratings
- Stock Rating: BUY (Maintain)
- Target Price: HK$33.82
- Potential Return: Over 15% over the next 12 months
Industry Outlook
- Outperformance: The industry is expected to outperform the relevant broad market benchmark over the next 12 months.
Risk and Disclaimer
- This report is not tailored for individual investors and does not constitute investment advice.
- Past performance does not guarantee future results.
- The report is intended for distribution to specific institutional investors and may not be shared with others without consent.
- CMBIGM may have conflicts of interest and is not liable for any reliance on the report's content.
