NCI (1336 HK) Summary
Core Content
Company: China Merchants Securities (HK) Co., Ltd.
Sector: Insurance
Stock Ticker: 1336 HK
Valuation Metrics:
- P/EV: ~0.6x (18E)
- P/B: ~1.4x (18E)
- ROE: 11.3% (18E), 12.3% (19E), 12.6% (20E)
Analyst Rating: BUY
Target Price: HK$51.20 (+37% from previous price of HK$37.45)
Overall Performance in 3Q18
- Shareholders' net profit increased by 51.3% YoY to RMB7.8bn.
- ROE (not annualized) reached 11.8%, up from 8.3% in 3Q17.
- Total comprehensive income dropped 23.9% YoY to RMB4.5bn, attributed to a high base in 3Q17 and volatile capital markets.
- Renewal premiums grew 29.4% YoY to RMB78.3bn, contributing to GWP growth of 11.8% YoY.
- Individual-channel regular FYP declined 33.4% YoY, consistent with the -33.7% YoY in 1H18.
- Operating profit margin decreased to 8.3% from 9.3% in 1H18, possibly due to increased expenses on life agent management.
Management Guidance
- The management emphasized improving performance rate (53.6% in 1H18, up 0.5ppt YoY) and productivity per capita (down 26.2% YoY in 1H18).
- Focus on sales of protection-type products and optimizing product structure to achieve quality growth.
Key Data
- 52-week range: HK$30.25 - HK$57.85
- Market cap: HK$38,727 million
- Avg. daily volume: 10.11 million shares
- Shareholding Structure:
- Fosun International Holdings Ltd.: 15.0%
- Swiss RE Direct Investments CO: 7.5%
- Outstanding shares: 1,034 million
- Free float: 46.9%
Valuation and Risks
- The stock is undervalued compared to its historical P/EV and P/B ranges.
- Key catalyst: Better-than-expected NBV growth in 2H18.
- Key risks: Adverse capital market conditions and increased competition in health insurance products.
Peer Valuation Comparison
| Company |
Ticker |
Rating |
Price (HK$) |
TP (HK$) |
Mkt Cap (HK$ mn) |
P/EV (2018E) |
P/E (2018E) |
P/B (2018E) |
ROE (2018E) |
| China Life |
2628 HK |
Buy |
15.96 |
32.9 |
82,696 |
0.5 |
9.0 |
1.1 |
12.5% |
| Ping An |
2318 HK |
Buy |
74.40 |
109.0 |
172,893 |
1.2 |
12.0 |
2.2 |
19.4% |
| China Pacific |
2601 HK |
Buy |
29.70 |
54.6 |
43,008 |
0.7 |
11.6 |
1.5 |
13.4% |
| NCI (New China Life) |
1336 HK |
Buy |
37.45 |
51.2 |
19,487 |
0.6 |
13.0 |
1.4 |
11.3% |
Financial Summary
Balance Sheet (RMBmn)
| Item |
2016 |
2017 |
2018E |
2019E |
2020E |
| Total assets |
699,181 |
710,275 |
764,793 |
826,345 |
895,365 |
| Shareholders' equity |
59,118 |
63,715 |
71,328 |
80,655 |
91,466 |
Cashflow Statement (RMBmn)
| Item |
2016 |
2017 |
2018E |
2019E |
2020E |
| Net increase in cash |
326 |
-5,418 |
676 |
764 |
856 |
| Cash and cash equivalents |
14,230 |
8,812 |
9,488 |
10,252 |
11,108 |
Profit & Loss Statement (RMBmn)
| Item |
2016 |
2017 |
2018E |
2019E |
2020E |
| 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 |
| EPS |
1.58 |
1.73 |
2.44 |
2.99 |
3.46 |
| BVPS |
18.95 |
20.42 |
22.86 |
25.85 |
29.32 |
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
| Rating |
Definition |
| OVERWEIGHT |
Expect sector to outperform the market over the next 12 months |
| BUY |
Expect stock to generate 10%+ return over the next 12 months |
| NEUTRAL |
Expect stock to generate +10% to -10% over the next 12 months |
| SELL |
Expect stock to generate loss of 10%+ over the next 12 months |
Key Highlights
- NCI maintained a BUY rating despite the drop in total comprehensive income.
- Renewal premiums were a major driver of growth in 3Q18.
- The company's P/EV and P/B ratios are at the lower end of historical ranges, indicating potential undervaluation.
- The management is focusing on improving performance and product structure to drive quality growth.
- NBV growth is expected to improve in 2H18, which could be a key catalyst for the stock.
- Risks include adverse capital market conditions and increased competition in health insurance.
