Fangzheng Securities released a research report stating that China Financial Insurance (02328) has a clear business model and plenty of room for growth. As the industry leader, the company has long-term steady profitability, and has a “Highly Recommended” rating, with a target price of HK$13.6. Debt side: the company's premium growth is steady, COR is falling steadily, and underwriting profit is expected to continue to increase; asset side: premium income drives an increase in investment assets, compounded by increased expectations of economic recovery, and investment income is expected to improve significantly, driving profit growth. The bank expects the company's 23-25E annual premium to be +6.3%/+9.4% YoY; net profit to mother -14.6%/+28.8%/+17.2% YoY.
The main views of Fangzheng Securities are as follows:
China's financial insurance ranks first in the industry, and the Matthew effect is obvious.
China Financial Insurance is the largest property insurance company in China and a core member of the China People's Insurance Group. Its predecessor can be traced back to the People's Insurance Company of China, which was established in 1949. With deep experience and resource accumulation, the company continues to lead in performance.
The company has three unique advantages, making it a unique long-term growth driver.
The financial insurance company's business model is simple and clear, and both sides of the financial insurance company can contribute to profits. The company has three unique advantages: first, premiums can grow steadily over a long period of time; second, COR still has room to decline; third, the investment side contributes steadily to profits.
1. Total premiums will continue to grow, and the compound growth rate is expected to grow 8.3% in 23-25
2. It is expected that COR will remain stable at around 98% in 23-25
3. Steady increase in investment income: Financial insurance companies have a short underwriting period (generally 1 year) and stable profitability. There is no need for asset investment to cover costs. Instead, premium income can continuously increase the size of investment assets and continue to contribute profits. At the end of '22, China's financial insurance investment assets reached 570.7 billion yuan, of which fixed income assets accounted for 59%; total/net investment income of 20.9 billion yuan/20.2 billion yuan, and the last 5 years of CAGR +1.3%/+5.8%. Total investment income accounted for 67% of profit, which is a stabilizer for profit growth. It is expected that as the economy continues to recover, the improvement in the equity market will significantly boost the company's investment. 24-25E's total investment income is expected to be 4.2%-4.7%, which in turn will drive profit recovery.
The company continues to pay attention to investor returns, and the level of dividends continues to rise.
The company's dividend ratio rose from 20.8% in 2015 to 40.2% in 2022, and the dividend per share also rose from 0.3 yuan/share in 2015 to 0.48 yuan/share in 2022, with an average compound annual growth rate of 6.7%; the dividend ratio also increased significantly with the increase in dividends per share, from 3.1% in 2018 to 5.4% in 2022, highlighting the company's long-term value.
Risk warning: 1) Natural disasters are frequent; 2) New car sales fall short of expectations; 3) equity market shocks and interest rates are falling rapidly.