In 9M20, NCI’s GWP increased 24.5% YoY and agent-channel FYRP rose 9.5% YoY, outpacing industry average. Net profit declined 14.6% YoY to RMB11.1bn in 9M20, which narrowed 7.5ppt from 1H20, primarily due to last year’s tax credit. Pre-tax profit stayed largely flat.
- Result positives. 1) NBV decline narrowed in 3Q. Individual-channel FYRP maintained steady pace of increase, up 12.8%/9.5%YoY in 3Q20/9M20. The Company promoted higher-margin rider products in 3Q20, which likely lifted NBV margin. The Company did not release NBV figures in quarterly report, but it had kept the goal of positive NBV growth in 2020. Conditional on steady FYRP growth and improving NBV margin in 2H20, we forecast NBV to narrow its 11.4% YoY decline in 1H20 to 5.4% for the full year. 2) Bancassurance development is a bright spot. This channel generated RMB 22.3bn FYP in 9M20 (RMB17.4bn single premiums + RMB 4.9bn regular premiums) and was the backbone for premium growth in time of COVID-19. 3) Investment income rose 65%/38% in 3Q20/9M20 on back of realized gains from equity trading and interest income from fixed income assets. Annualized total investment yield reached 5.6%, up 0.9ppt YoY.
- Risks. 1) NCI’s kickoff season started later than peers because the Company was working hard to fulfill 2020 goals. This could make it difficult to acquire customers in crowded markets. 2) With number of agents approaching 560,000, the Company need to pay more attention to training agents and increasing agent productivity.
- Reiterated firm strategies. 1) To achieve balanced growth in both volume and value. The Company will primarily focus on health insurance products and annuity products to meet diversified insurance demand of households. 2) The Company takes bancassurance as an irreplaceable channel, which is likely to maintain good momentum of growth in the next few years. 3) To expand and enhance agent team, which sits at the core of life insurance business.
- Valuation. We keep financial forecast and TP unchanged since the Company’s 3Q performance was largely within our expectation. The Company’s H-share is trading at 0.37/0.34x FY20/21E P/EV. Maintain BUY.
