China Life reported +9.4% YoY increase of GWP, +7.1% YoY growth of FYRP and +2.7% growth of NBV in 9M20. Net profit declined 18.4% YoY to RMB 47.1bn, primarily due to increase in insurance reserves, which reduced pre-tax profit by RMB 19.1bn. Overall speaking, China Life has exhibited resilience and stuck to business value growth under the circumstance of COVID-19 and its aftershocks.
- Result highlights. 1) NBV increased 2.7% YoY in 9M20. Although NBV growth decelerated a bit from +6.7% in 1H20, it still outpaced industry average and major peers. Such deceleration was also a result of the Company strategically slowing its pace of expansion in 3Q in order to enhance business quality and agent productivity. 2) Product mix improved further, represented by rising proportions of FYRP with payment duration of 10+ years and designated protection-oriented products. 3) The Company has started kickoff season earlier than peers to better prepare for business development in 2021. It also pledges to serve customer demand for both savings and protection products.
- Result negatives. 1) Number of individual agents declined to 1.581 million at the end of 3Q, down 6.4% from 1.69 million as at 30 Jun 2020. China Life may also confront challenges promoting agent productivity and quality. 2) Net/Total investment yield edged down 36bps/36bps to 4.47%/5.36%, respectively, similar to the trends in 1H20. As one of the early investors of Ant Financial, however, China Life is likely to book fair value gains on available-for-sale assets in OCI after successful listing of Ant Financial.
- Risks. 1) Slower recovery of insurance demand in post-pandemic era. 2) Stock market volatilities reducing P&L investment income.
- Reiterate BUY. We keep NBV and EV forecast unchanged, though we adjusted some of the financial estimates to reflect 3Q results. TP remained HK$ 28.14. The Company’s H-share is trading at 0.43x/0.4x FY20/21E P/EV, or ~67% discount to its A-share’s value. Maintain BUY and one of our sector top picks.
