20161029-美银美林-新华保险-01336.HK-9M_earnings_slightly_behind_our_forecast_11页_772kb
报告摘要
New China Life Summary: 9M16 Earnings and Valuation
Core Content and Key Information
New China Life (NCI) reported its 9M16 earnings, revealing a net profit of RMB4.8bn, which represents a 45% YoY decline. The 3Q16 net profit was RMB1.5bn, down 23% YoY, with the decline attributed to increased reserve catch-up in response to the drop in the 750-day China Government Bond (CGB) yield. The company estimated the additional reserves at nearly RMB1-1.3bn for the quarter.
The surrender rate improved in 3Q16 to 1.0% (or 5.3% in 9M), down from 1.4% (or 8.3% in 9M15). This shift reflects the company's strategic focus on restructuring its business to emphasize value creation and long-term sustainable growth over short-term scale and momentum.
Despite the decline in overall premium growth of 1.3% YoY, the agency channel showed strong performance with 17.2% YoY growth in premium income. This was driven by agency renewal premium (up 14.7%) and first-year regular pay (up 35.7%).
The total investment yield declined by 3.6 percentage points to 5.1% in 9M16 from 8.7% in 9M15, primarily due to lower capital gains. However, there was no detailed disclosure on recurring yield, which was reported as 5.2% at 1H16.
The solvency margin remained at a comfortable level at 247% (core), though it declined by 4.8ppt from 251.8% in 2Q16. The decline may be due to product margin reductions or investment portfolio adjustments affecting the MTM (mark-to-market) value.
Financial Highlights
| Metric | 2014A | 2015A | 2016E | 2017E | 2018E |
|---|---|---|---|---|---|
| Reported Net Profit (mn CNY) | 6,406 | 8,601 | 6,892 | 7,389 | 7,740 |
| Net Profit Growth | 45% | 34% | -20% | 7% | 5% |
| EPS (HKD) | 2.6 | 3.3 | 2.5 | 2.8 | 2.9 |
| Book Value per Share (HKD) | 19.5 | 22.1 | 23.3 | 26.5 | 29.1 |
| DPS (HKD) | 0.26 | 0.33 | 0.26 | 0.28 | 0.30 |
| Price to Book Value | 1.91 | 1.59 | 1.44 | 1.30 | 1.19 |
| PER | 13.17 | 10.27 | 13.37 | 12.47 | 11.91 |
| Dividend Yield | 0.99% | 0.76% | 0.81% | 0.85% | NA |
| P/EV | 0.98 | 0.86 | 0.78 | 0.66 | 0.58 |
| Implied New Business Multiplier | (0.30) | (2.26) | (3.24) | (4.74) | (5.65) |
Investment and Valuation Analysis
The price objective for New China Life (H share) is set at HK$37.03, and for the A share at CNY32.55, based on the adjusted appraisal value for FY16E. This appraisal value is calculated using the embedded value plus new business multiple x new business value, with the assumption of a long-term investment return of 4.0% and a New Business Multiple of 7x, consistent with industry standards.
Downside and Upside Risks
- Downside Risk: A sharp decline in equity markets could negatively impact the company's Embedded Value (EV) and solvency.
- Upside Risk: Better-than-expected Value of New Business (VNB) growth and a strong equity market rally could boost the valuation.
Valuation Bands
- Rolling 12-month forward P/EV Band: 0.98 (2016E), 0.86 (2017E), 0.78 (2018E)
- Rolling 12-month forward P/BV Band: 1.91 (2014A), 1.59 (2015A), 1.44 (2016E), 1.30 (2017E), 1.19 (2018E)
Key Income Statement Data (Dec)
| Metric | 2014A (CNY Millions) | 2015A (CNY Millions) | 2016E (CNY Millions) | 2017E (CNY Millions) | 2018E (CNY Millions) |
|---|---|---|---|---|---|
| Gross Written Premiums & Policy Fees | 110,067 | 111,994 | 117,459 | 128,542 | 144,584 |
| Net Earned Premiums | 109,470 | 111,355 | 116,789 | 127,808 | 143,759 |
| Total Investment Income | 31,784 | 45,069 | 31,135 | 33,376 | 35,848 |
| Net Investment Income | 28,769 | 29,661 | 31,135 | 33,376 | 35,848 |
| Net Realized and Unrealized Gains | 3,015 | 15,408 | 0 | 0 | 0 |
| Other Income | 840 | 1,494 | 1,643 | 1,808 | 1,989 |
| Total Income | 142,094 | 157,918 | 149,567 | 162,992 | 181,596 |
| Claims and Policyholders’ Benefits | (113,161) | (120,050) | (113,869) | (124,613) | (140,165) |
| Commission Expenses of Insurance Operations | (7,641) | (10,679) | (11,212) | (12,270) | (13,801) |
| Other Expenses | (11,878) | (14,085) | (14,924) | (15,816) | (16,763) |
| Total Expenses | (132,680) | (144,814) | (140,005) | (152,698) | (170,729) |
| Share of Profits of Associate | 539 | 535 | 589 | 647 | 712 |
| Operating Profit Before Tax | 9,953 | 13,639 | 10,151 | 10,941 | 11,579 |
| Income Taxes | (1,375) | (3,180) | (1,216) | (1,304) | (1,366) |
| Minority Interests | (1) | (1) | (1) | (1) | (1) |
| Net Profit After Tax | 6,406 | 8,601 | 6,892 | 7,389 | 7,740 |
Key Ratios
- Surrender/Net Premiums: 35.5% (3Q15), 26.2% (3Q16)
- Claims/Net Premiums: 26.0% (3Q15), 44.8% (3Q16)
- Claims + Surrenders/Net Premiums: 61.4% (3Q15), 71.0% (3Q16)
- Reserves/Net Premiums: 32.6% (3Q15), 24.5% (3Q16)
- Reserves + Benefit/Net Premiums: 94.0% (3Q15), 95.5% (3Q16)
- Commissions/Net Premiums: 11.5% (3Q15), 14.0% (3Q16)
- Other Expenses/Net Premiums: 17.7% (3Q15), 17.3% (3Q16)
Ratings and Investment Opinion
- Rating (H Share): NEUTRAL
- Rating (A Share): UNDERPERFORM
- Price Objective (H Share): HK$37.03
- Price Objective (A Share): CNY32.55
- Investment Opinion: C-2-7 / C-3-7
Summary of Premiums and Income
- Life Premiums (9M16): RMB93.4bn; -1.3% YoY (-2.5% YoY in 8M16)
- FYP (9M16): RMB12.6bn; +24.4% YoY; 85.1% regular pay
- FYRP (9M16): RMB10.7bn; +35.7% YoY
- Single Premiums (9M16): RMB1.9bn; -15.8% YoY
- Renewal Premiums (9M16): RMB34.2bn; +14.7% YoY
- Bancassurance FYP (9M16): RMB24.6bn; -25.7% YoY; 19.1% regular pay
- Bancassurance FYRP (9M16): RMB4.7bn; +63.6% YoY
- Bancassurance Single Premiums (9M16): RMB19.9bn; -34.2% YoY
- Bancassurance Renewal Premiums (9M16): RMB10.3bn; -17.4% YoY
- Service and Business Development FYP (9M16): RMB4.0bn; +31.4% YoY
- Service and Business Development FYRP (9M16): RMB3.6bn; +47.6% YoY
- Service and Business Development Single Premiums (9M16): RMB0.4bn; -35.7% YoY
- Service and Business Development Renewal Premiums (9M16): RMB6.6bn; +33.8% YoY
- Group Life Premiums (9M16): RMB1.1bn; +1.1% YoY
- Total FYP (9M16): RMB41.2bn; -11.0% YoY
- Total FYRP (9M16): RMB19.1bn; +44.0% YoY
- Total Single Premiums (9M16): RMB22.2bn; -33.0% YoY
- Total Renewal Premiums (9M16): RMB52.2bn; +8.1% YoY
Company Description
New China Life is one of the top three or four largest life insurers in China. It had historical legacy issues such as poor solvency and margins, but was bailed out by the Insurance Protection Fund in 2006. The stake was later sold to Huijin, and a new management team was introduced at the end of 2009 to restructure and improve the company's fundamentals.
Investment Rationale
While the company has shown improvement in agents' efficiency, productivity, and margins, a full turnaround in insurance fundamentals is still expected to take time. New China Life is sensitive to equity market movements and is considered a beta name by investors.
Analyst Certification
Katherine Hu, Research Analyst at Merrill Lynch (Hong Kong), certifies that the views in this report reflect her personal opinions and that she has no financial ties to the specific recommendations or views expressed in the report.
Important Disclosures
- The report is not registered/qualified as a research analyst under FINRA rules.
- It is employed by a non-US affiliate of MLPF&S.
- Investors should be aware of potential conflicts of interest.
- The report is intended as only a single factor in investment decisions.
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