\u3000\u3000 China Pacific Insurance (Group) Co.Ltd(601601) (601601)
Main business of life insurance: Changhang action, firm transformation
(1) remarkable transformation results in the past: CPIC life insurance achieved remarkable results through the implementation of transformation 1.0 and transformation 2.0 strategies. Over the past 10 years, the value ratio of new business has increased from 13.6% to 43.3% in 2020, which is in the high position of the industry. The surrender rate has continued to decline, from 4.2% in 2015 to 1.2% in 2020, basically fluctuating slightly around 1%, and the continuation rate has also increased steadily, both at the excellent level of the industry.
(2) “Changhang action” made another breakthrough: at the beginning of the 21st century, Taibao released a forward-looking transformation program of “Changhang action” for the future, anchored long-term ism, and heavily introduced Mr. Cai Qiang, the former regional CEO of AIA. At present, the phase I construction drawings of the “long voyage action” have been drawn and have entered the stage of substantive implementation and promotion. The transformation cannot be achieved overnight, nor can it be without pain. I believe that the Taibao can maintain strategic concentration and withstand the pain of reform. The firm reform in the right direction will eventually bring results.
Property insurance: the premium increased steadily and the cost rate improved
The premium of CPIC property insurance ranks third in the industry, and the market share has increased steadily. In the past five years, the compound growth rate of premium is 11.6%, and the proportion of non vehicle insurance has increased rapidly, reaching 46.1% in 21h1, which is almost equal to that of vehicle insurance. The comprehensive cost rate of property insurance decreased year by year, from 99.8% in 15 years to 99.0% in 20 years. Since October 20, affected by the comprehensive reform of automobile insurance, the comprehensive cost rate has risen. It is expected that the cost rate will be optimized and improved in the future with the scale advantage and the enabling effect of scientific and technological application.
Investment management: solid income master, extremely stable income
CPIC’s investment asset scale continued to improve, and its fixed income investment ability was excellent. The rate of return on investment has basically remained the second place in the industry in recent 10 years, and it is extremely stable with little fluctuation. The standard deviation of the net rate of return on investment in recent 10 years is only 0.26%. The sustained and extremely stable investment income provides an important guarantee for the steady growth of CPIC’s performance and long-term high dividends.
Profit forecast and valuation
China Pacific Insurance (Group) Co.Ltd(601601) focus on the main business of insurance. The reform of life insurance is united from top to bottom and the transformation is firm. The current valuation is at a historical low and the safety margin is high. We are optimistic about the performance and valuation improvement after the gradual emergence of the reform results. It is estimated that from 2021 to 2023 China Pacific Insurance (Group) Co.Ltd(601601) operating revenue will increase by 3% / 8% / 12%, net profit attributable to parent company will increase by 10% / 22% / 26%, new business value will increase by – 25% / – 15% / 2%, embedded value will increase by 13% / 16% / 21%, EVPs will be 53.87/62.43/75.48 yuan, and the current price will correspond to 0.52/0.45/0.37 times PEV. The target price is 35.2 yuan, corresponding to pev0.5 yuan of 2022e group 6 times, with a “buy” rating for the first time.
Risk tips
The progress of life insurance reform was less than expected, the long-term interest rate fell rapidly, the real estate risk expanded, the epidemic spread more than expected, and the strict supervision policy intensified.
