NCI (1336 HK) Summary
Core Content
NCI (1336 HK) is a Hong Kong-listed insurance company that is part of the insurance sector. The report provides an analysis of its performance for the first half of 2018 (1H18), financial forecasts, valuation metrics, and investment ratings.
Main Financial Performance Highlights
- Shareholders' Net Profit (1H18): RMB5.8bn, up 79.1% YoY
- Comprehensive Income (1H18): RMB3.7bn, down 9.0% YoY
- EPS (1H18): RMB1.86
- ROE (not annualized): 9.0%
- NBV (New Business Value) (1H18): Down 8.9% YoY
- NBM (New Business Margin) on FYP (First Year Premium): Rose to 50.5% in 1H18 from 39.3% in 1H17, driven by increased high-margin health insurance products and reduced low-margin savings products.
Key Insights and Views
- 1H18 NBV Performance: The NBV decline was better than expected due to the strong growth in health insurance FYP, which increased by 12.8% YoY. Health insurance now contributes 56% of total FYP, up from 36% in 1H17.
- Business Structure Optimization: The improved NBM indicates a shift towards more profitable products. The company's focus on health insurance is a strategic move to enhance profitability.
- Profitability: Operating margin and net margin improved in 1H18, partly due to a significant reduction in administrative expenses.
Management Guidance
- Performance Rate: Increased to 53.6% in 1H18, up 0.5% YoY
- Productivity per Capita: Decreased by 26.2% YoY, indicating a need for improvement in efficiency
- Strategic Focus: Management is emphasizing the sales of protection-type products, particularly health insurance, to optimize the product structure and achieve quality growth in the sales team.
Valuation and Risk Assessment
- Current Valuation: Trading at ~0.5x 18E P/EV and ~1.3x 18E P/B
- Target Price: HK$51.20, with a potential upside of 43% from the previous price of HK$35.9
- Key Catalysts: Better-than-expected NBV growth in 2H18
- Key Risks: Adverse capital market conditions and increased competition in health insurance products
Peer Comparison
| Company |
Ticker |
Rating |
P/EV (2018E) |
P/B (2018E) |
ROE (2018E) |
| China Life |
2628 HK |
Buy |
0.5 |
1.2 |
12.5% |
| Ping An |
2318 HK |
Buy |
1.2 |
2.2 |
19.4% |
| China Pacific |
2601 HK |
Buy |
0.7 |
1.5 |
13.4% |
| New China Life |
1336 HK |
Buy |
0.5 |
1.3 |
11.3% |
| China Taiping |
966 HK |
NR |
n.a. |
1.3 |
13.3% |
Financial Summary
Balance Sheet (Year ended 31 Dec)
| Item |
2016 (RMBmn) |
2017 (RMBmn) |
2018E (RMBmn) |
2019E (RMBmn) |
2020E (RMBmn) |
| Total Assets |
699,181 |
710,275 |
764,793 |
826,345 |
895,365 |
| Total Liabilities |
640,056 |
646,552 |
693,456 |
745,680 |
803,889 |
| Shareholders' Equity |
59,118 |
63,715 |
71,328 |
80,655 |
91,466 |
Profit & Loss Statement (Year ended 31 Dec)
| Item |
2016 (RMBmn) |
2017 (RMBmn) |
2018E (RMBmn) |
2019E (RMBmn) |
2020E (RMBmn) |
| Total Revenues |
144,796 |
143,082 |
156,583 |
174,926 |
194,568 |
| Net Profit for the Year |
4,943 |
5,384 |
7,614 |
9,328 |
10,812 |
Financial Ratios
| Ratio |
2016 |
2017 |
2018E |
2019E |
2020E |
| EPS (RMB) |
1.58 |
1.73 |
2.44 |
2.99 |
3.46 |
| BVPS (RMB) |
18.95 |
20.42 |
22.86 |
25.85 |
29.32 |
| ROE (%) |
8.5 |
8.8 |
11.3 |
12.3 |
12.6 |
Investment Ratings
- Industry Rating: OVERWEIGHT (Expect sector to outperform the market over the next 12 months)
- Company Rating: BUY (Expect stock to generate 10%+ return over the next 12 months)
Key Data
- 52-Week Range (HK$): 30.25 - 57.85
- Market Cap (HK$ mn): 37,124
- Avg. Daily Volume (mn): 10.07
Shareholding Structure
- Fosun International Holdings Ltd. (holding %): 15.0%
- Swiss RE Direct Investments CO (holding %): 7.5%
- No. of Shares Outstanding (mn): 1,034
- Free Float (%): 46.9%
Conclusion
Despite a decline in NBV in 1H18, NCI's performance was driven by strong health insurance FYP growth and improved NBM. The company's focus on high-margin products and cost control has enhanced its profitability. With a target price that offers a 43% upside and a valuation at the lower end of its historical range, the report maintains a BUY rating for NCI. The key catalyst for future growth is the potential for better-than-expected NBV growth in the second half of 2018, while the main risks include adverse capital market conditions and heightened competition in health insurance.
