Soochow Securities: Gives CPIC a buy rating

2021-10-30Hu Xiang and Zhu Jieyu of Soochow Securities Co., Ltd. conducted research on CPIC and released a research report "2021 Third Quarter Report Comments: The Long Voyage Action Is Deepened, and the Results of the Individual Insurance Sector Are Shown", this report gives a buy rating to CPIC, and the current stock price is 27.4 yuan.

CPIC (601601)

Event: The company released the third quarter report of 2021, and the cumulative net profit attributable to the mother in the first three quarters of 2021 was 22.686 billion yuan, a year-on-year increase of +15.5%; the net assets attributable to the mother were 220.732 billion yuan, +2.6% compared with the end of 2020; the total premium was 301.460 billion yuan, a year-on-year -0.3%, of which the life insurance premium was 181.796 billion yuan, a year-on-year -2.4%; the property insurance premium was 118.994 billion yuan, a year-on-year +3.0%, and the overall performance was in line with market expectations.

Investment essentials

Life insurance: New personal insurance orders increased in reverse, but the pressure of industry adjustment continued. 1) The results of the Long Voyage action have begun to appear, and the performance of personal insurance channels is better than that of the industry: Under the guidance of the Long Flight Action, in the first three quarters of 2021, the company accurately grasped the rhythm of business promotion on the one hand, grasped the opening of the door, and cooperated with the 30th anniversary of Siqing to carry out a series of business promotion activities and adopted a multi-product strategy to stimulate industry demand, on the other hand, it further promoted the upgrading of the marketing team to the direction of professionalization, specialization and digitalization, thereby releasing per capita production capacity. Overall, the company's personal insurance reform has achieved good results, in the first three quarters of 2021, the company's personal customer business agent channel to achieve premium income of 163.844 billion yuan, down 2.3% year-on-year; agent channel new policy premium of 26.302 billion yuan, an increase of 3.6% year-on-year, leading the industry, of which the new orders paid in advance increased significantly by 15.8% year-on-year to 22.569 billion yuan. 2) Industry pressure continued, and the life insurance business deteriorated marginally from 2021H1: after (1) the epidemic repeatedly suppressed the demand for insurance as an optional consumer product; (2) the rapid popularization of inclusive insurance to replace and squeeze out commercial insurance; (3) the structural problems of product supply to be solved, and other factors, the industry's domestic demand repair was slow, resulting in the company's new order growth since 2021Q1 was weak, and the policy continuation rate declined (Q1-3 single quarter agent new orders grew at a year-on-year rate of +35.9%, -11.2%, and - 41.2%), the liabilities side is under pressure. In terms of segmentation, the year-on-year growth rate of the total premium of the company's agent channels turned from 0.7% in 2021H1 to -2.3%, of which the year-on-year growth rate of new policy premiums and new single period premiums narrowed by 14.8 and 17.9pct compared with the first half of 2021. Considering that the company has launched more short-term savings products to reduce the value ratio of new business, the marginal weakening of new policy premiums and the reduction of manpower scale, we believe that the value of the company's new business will continue to be under pressure throughout the year.

Property insurance: The decline in car insurance premiums widened month-on-month, and non-car insurance drove property insurance premiums upwards. 1) In terms of automobile insurance: it has been one year since the comprehensive reform of automobile insurance, and the proportion of insurance policies after comprehensive reform has increased, and the insurance policy before comprehensive reform will be gradually replaced, so the pressure of comprehensive reform of automobile insurance is being fully reflected. In the first three quarters of 2021, the company achieved a total premium income of 66.522 billion yuan, a year-on-year decrease of 8.0%, and the decline rate continued to widen by 1.1pct compared with 2021H1. 2) Non-auto insurance: Although the growth rate of 2021H1 slowed down, the company's non-auto insurance business still maintained a good growth trend, in the first three quarters of 2021, the company achieved a total non-auto insurance premium income of 52.472 billion yuan, a year-on-year increase of 21.4%, accounting for the proportion of total property insurance premiums rose by 6.7pct to 44.1% year-on-year, alleviating the growth pressure brought about by the reduction of auto insurance scale. Although the year-on-year growth rate of the company's total property insurance premiums in the first three quarters of 2021 decreased compared with 2021H1, driven by non-motor insurance, it still increased by 3.0% year-on-year to 118.994 billion yuan. 3) Under the dual influence of accident disasters and comprehensive reform of automobile insurance, we expect the comprehensive cost ratio of the company's property insurance to rise throughout 2021.

The investment side performed well, helping to maintain solid performance. In the first three quarters of 2021, the company achieved investment income of 73.664 billion yuan, an increase of 11.7% year-on-year. The company adheres to the "value, long-term, stable" investment philosophy, improves investment management capabilities, while maintaining a reasonable long-term interest rate fixed income product allocation, but also increases equity asset allocation, flexibly adjusts the rhythm of equity variety income cashing, the total /net investment yield is 5.3%, 4.3%, year-on-year change of -0.2pct, -0.3pct, and compared with the first half of 2021, it is expanded by +0.3pct and +0.2pct respectively, helping the net profit attributable to the mother rise by 15.5% To 22.686 billion yuan, at the same time, the company in the 2021Q3 single quarter in the discount rate assumptions changes, the increase in reserve provisions affected the performance of the situation can still achieve a net profit attributable to the mother of 5.382 billion yuan, a slight decrease of only 0.5% year-on-year, the decline is narrower than the same industry.

Earnings Forecast and Investment Rating: Since it will take time to repair the negative and secondary ends of the short-term industry, we have lowered the company's new business value forecast for 2021-2023 by 170.6/185.3/21.04 billion yuan to 149.3/155.7/17.68 billion yuan, corresponding to the 2021-2023 VNPS adjusted from 1.77/1.93/2.19 yuan to 1.55/1.62/1.84 yuan. In the long run, the company will focus on team upgrades, track layout, service value-added, digital empowerment, in-depth promotion of long-distance navigation actions, to create a high-capacity team, the future is expected to take the lead in the transformation of success, optimistic about the company's long-term development. The current market capitalization (as of October 29, 2021) corresponds to the 2021-2023 A-share valuation of PEV0.50/0.44/0.38 times, maintaining a "Buy" rating.

Risk warning: 1) the difficulty of transformation exceeded expectations, and the new order fell sharply; 2) the industry demand repair was less than expected; 3) the long-end interest rate fell more than expected; 4) the equity market fluctuations affected the company's investment side.

A total of 21 institutions have given ratings in the last 90 days, 16 buy ratings and 5 overweight ratings; the average target price of institutions in the past 90 days has been 40.8; the Securities Star Valuation Analysis Tool shows that China Pacific Insurance (601601) good companies have rated 3 stars, good price ratings of 4 stars, and valuation comprehensive ratings of 3.5 stars.