Profitgrowth accelerated, “Revitalizing China Life” strategy on track
China Life announced its NPAT improved 190.4% yoy to RMB57.7bn in 9M19 on investment recoveryand tax reform, up 62pp from 1H19. Premium revenue rose 6.1% yoy to RMB497bn. 3Q19 quarterly premium growth improved significantly to 10.1%, vs -8.5% in2Q19. We believe with the promotion of the “Revitalizing China Life” strategy, the company’s fundamentals are improving steadily. We revise up 2019-2021E EPSto RMB2.10/RMB2.46/RMB3.07 based on latest results data, up c. 30%-40% fromprevious levels. Maintain BUY.
Product structure improved, NBV grewsteadily on new policies
Total new policy premium grew 6.5% yoy (RMB162.2bn) in 9M19 and 27.6% in 3Q19 (up from -13% in2Q19). Regular FYP rose 4.7% yoy (RMB99.1bn) and 23.5% in 3Q19 (up from -20% in2Q19), driving regular FYP as a percentage of FYP of long policies up by 8.45ppto 98.07%. Term and product structures were also improved – the share of 10Ypolicy in FYP improved 16pp to 51%. Liability-side duration continued to lengthen. The share of specific protection products in FYP grew 8.79pp. NBV increased steadily at 20.4%, with the growth rate narrowing 2.3pp from 1H19. We believe margin is in a modest downtrend amid marginal improvement in total new policy premium. Surrender rate fell 2.8pp to 1.67%.
Sales force developed healthily, bodingwell for productivity
Agent expansion accelerated amid optimistic newpolicy sales. As at the end of September, the number of agents reached1,663,000, up 5.7% vs end-June and 15.6% vs the beginning of 2019. Agent productivity improved as the company reduced the weight of lump-sum premium in KPI assessment and put more emphasis on term structure transformation. Monthly average performing sales force grew 37.4% yoy and monthly average sales force for specific protection products rose 49.2% yoy. We believe high quality sales personnel could become an active catalyst for 2020 New Year initiatives. Agent productivity could be released considerably on inertial effect.
Investment yield soared, New Year initiatives already launched
By further advancing the “Dingxin Project”, the companyhas promoted the market-based reform of investment management system and maximized investment yields through flexible asset allocation. Total investment yield/net investment yield for 9M19 grew 2.31pp/0.21pp yoy to 5.72/4.83%, beating expectations. The company has kicked off its 2020 New Year initiativesand recorded more than RMB30bn of new sales from “Xinxiang Zhizun”, outperforming similar products last year. The yoy hike of settled rate for thecorresponding universal account has further strengthened the competitiveness ofthe product.
Tax reform conducive to LT development, maintain BUY
China Life has continued to benefit from the tax reform. The effective rate in 9M19 was only 6%, which helped the company to reduce cost and develop business. Per the latest adjusted earnings estimates, we expect 2019E-2021E EVPS to be RMB32.61, RMB37.85 and RMB43.94 (vs RMB33.10, RMB38.12 and RMB43.86), implying 0.95x, 0.82x and 0.70x P/EV (vs 0.97x peers average). Considering the clear strategy of “Revitalizing China Life”, we apply 1.1-1.2x 2019E P/EV and derive a TP of RMB35.87-39.13. Maintain BUY.
Risks:protection products miss; potential spread loss amid falling interest rates;and uncertain investment yield growth amid equity market fluctuations.
Full Chinese report: 【华泰金融沈娟团队】新单与投资共振，推动NBV稳增长—中国人寿(601628)【证券研究报告】
👤SHEN Juan Chief Analyst
👤TAO Shengyu，CFA Non-banking
👤JIANG Zhaopeng Banking
👤WANG Ke Non-banking
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