20181129-招商证券_香港_-China_insurance_sector_6页_743kb

Summary of China Insurance Sector Report

Core Content

This report provides an analysis of the China insurance sector, with a particular focus on the life insurance segment. It outlines the long-term growth prospects, current market dynamics, valuation levels, and investment recommendations for key players in the sector, including Ping An, CPIC, China Life, and NCI.

Main Views and Key Information

Positive Long-Term Growth Prospects for Life Insurance

• Overweight recommendation for the life insurance sector is maintained, driven by rising demand for health insurance.
• Health insurance GWP (Gross Written Premium) rose by 34% YoY in 3Q18, indicating strong growth momentum.
• Individuals in China bear a heavy health expenditure burden, with household out-of-pocket spending accounting for 28.8% of total healthcare expenditure in 2017, significantly higher than in developed countries. This suggests a long-term steady growth in health insurance demand.
• Agent productivity is a key driver of performance, especially for Ping An, which has 40% higher agent productivity than its peers due to its focus on long-term protection products and technology-enhanced sales and service.

NBV Growth Expected to Improve in 4Q2018

• The life insurance sector is expected to see improving New Business Value (NBV) growth in the fourth quarter of 2018, due to:
  • Stabilizing life insurance business in Q2 and Q3.
  • Low-base effect from the Circular No.134 in 4Q2017, which caused a significant contraction in life insurance business for some players like CPIC and NCI.

Valuation Not Demanding

• The life insurance sector is trading at ~1.4x 19E P/B, with some key players at the lower end of their historical valuation ranges, suggesting attractive long-term investment potential.
• Ping An is trading at ~1.8x 19E P/B or ~1.0x 19E P/EV, below its historical average. This is considered a favorable valuation for the company.

Top Pick: Ping An (2318 HK)

• Ping An is the top pick due to its superb life agent productivity, which is expected to drive NBV growth of ~5–10% YoY in FY18E.
• The stock has a target price of HK$109, which is ~1.5x 19E P/EV.
• Key catalysts for Ping An include good capital market performance and robust NBV growth.
• Key downside risks include adverse capital market conditions and lower-than-expected 2019 jumpstart performance.

Savings Products Under Pressure in the Short Term

• FYP (First-Year Premium) growth is not expected to jump in the 2019 jumpstart season due to:
  • Low interest rates for savings products (2.5% to 3.5%), which are less attractive compared to bank wealth management products.
  • A greater emphasis on protection products by China life players, which is expected to lead to a more balanced life insurance business across quarters.

Valuation Comparison

• Valuation metrics for key players are as follows:
  • Ping An: 1.2x 19E P/EV (2018e), 1.0x 19E P/EV (2019e), 12.2x 19E P/E (2018e), 10.3x 19E P/E (2019e), 2.3x 19E P/B (2018e), 1.8x 19E P/B (2019e), ROE of 19.4% (2018e), 19.7% (2019e).
  • CPIC: 0.6x 19E P/EV (2018e), 0.5x 19E P/EV (2019e), 10.9x 19E P/E (2018e), 9.2x 19E P/E (2019e), 1.4x 19E P/B (2018e), 1.2x 19E P/B (2019e), ROE of 13.4% (2018e), 13.8% (2019e).
  • China Life: 0.5x 19E P/EV (2018e), 0.4x 19E P/EV (2019e), 12.0x 19E P/E (2018e), 9.8x 19E P/E (2019e), 1.3x 19E P/B (2018e), 1.1x 19E P/B (2019e), ROE of 11.3% (2018e), 12.3% (2019e).
  • NCI: 0.5x 19E P/EV (2018e), 0.5x 19E P/EV (2019e), 12.6x 19E P/E (2018e), 10.2x 19E P/E (2019e), 1.3x 19E P/B (2018e), 1.2x 19E P/B (2019e), ROE of 11.3% (2018e), 12.3% (2019e).

Investment Ratings

• Industry Rating: OVERWEIGHT – the sector is expected to outperform the market over the next 12 months.
• Company Ratings:
  • BUY for Ping An, CPIC, China Life, and NCI.
  • NEUTRAL for other global peers like AIA, MANULIFE, etc.

Conclusion

The China insurance sector, particularly the life insurance segment, is viewed as positively positioned for long-term growth, supported by rising health insurance demand, improving NBV growth, and attractive valuations. Ping An is highlighted as the top pick due to its superior agent productivity and technology-driven sales support. While savings products may face short-term challenges, the focus on protection products is expected to lead to a more balanced business model. The report provides detailed valuation metrics and investment recommendations for key players, with Ping An leading the way in terms of growth potential and valuation.