According to a research report released by Guolian Securities, maintaining the “buy” rating of China Financial Insurance (02328), the net profit returned to mother is expected to be 282/314.33.3 billion in 2024-2026, respectively, with corresponding growth rates of 15%/11%/6%, respectively. Given the company's scarce business model and high ROE, the target price is HK$13. Considering: 1) The company's underwriting profitability is at the leading level in the industry, and COR is expected to remain at a good level in 2024. 2) The recovery in the capital market is expected to drive a year-on-year improvement in investment income, which in turn supports the growth of net profit.
Incident: The company released its 2024 quarterly report. Under the new standards, the company achieved net profit of 5.871 billion yuan, or -38.3% over the same period last year. The company's overall COR was 97.9%, +2.2PCT year over year.
The main views of Guolian Securities are as follows:
The rise in COR led to a year-on-year decline in underwriting profit
1) In 2024Q1, the company achieved original insurance premium revenue of 173.97 billion yuan, +3.8% year over year, of which car insurance premiums were +1.9% year over year and non-car insurance premiums were +5.0% year over year. The company's premium growth rate is slightly behind the industry (+5.1%), and the pace of bidding for government projects, mainly agricultural insurance, has been delayed. Looking ahead to the whole year, as China's economy continues to recover and seasonal factors are eliminated, the company's premium income is still expected to achieve large single-digit growth.
2) The company's overall COR in 2024Q1 was 97.9%, up 2.2 PCT year on year, mainly due to increased impact of natural disasters and a year-on-year increase in payout rates due to increased impact of natural disasters and the resumption of automobile travel. In this context, the company's underwriting profit was -48.3% year-on-year to $2,391 million. Looking ahead, in the context of car insurance “integration of reporting” to improve cost rates and the company strengthens risk management and controls to keep payout rates stable, the company's COR is expected to continue to improve throughout the year, achieving the “guideline that the COR for car insurance is around 97%, and the COR for non-car insurance is < 100%.”
The year-on-year decline in investment income dragged down net profit performance
1) Under the new standards, the 2024Q1 company achieved net profit of 5.881 billion yuan, or -38.3% year-on-year, mainly due to a year-on-year decline in underwriting profit and investment income.
2) The company's annualized return on total investment in 2024Q1 was 3.2%. The company achieved a total investment income of 4.892 billion yuan (estimated value), or -34.7% year-on-year, mainly due to capital market fluctuations, which led to a year-on-year decline in equity investment income. The company's fair value change profit and loss in 2024Q1 was -164 million, a major drag on investment income (+1,225 million yuan in 2023Q1). 3) The simple annualized ROE of the 2024Q1 company is 10%, which is still at a good level.
Risk warning: Market competition has intensified, natural disasters have exceeded expectations, and the capital market has fluctuated greatly.