China Life (2628 HK) reported strong 1H24 results with a notable 18.6% Year-over-Year (YoY) increase in Net Benefit Value (NBV) to RMB32.3 billion, and a return to double-digit growth in its Enterprise Value (EV) at 11.4% to RMB1.4 trillion. This is attributed to a significant rise in investment income by 1.4 times YoY to RMB56.7 billion, driven by the insurer's adoption of IFRS 9 for both A/H share reporting. Pre-tax profit surged by 27.6% YoY to RMB47.9 billion, marking a 109.3% YoY increase in 2Q24.
Key highlights include:
- Outstanding margin expansion in bancassurance, with the NBV margin increasing by 13.4 percentage points to over 17%.
- Total investment assets reached a record high of RMB6.1 trillion, with a 1.31x increase in Fair Value Through Other Comprehensive Income (FVOCI) stocks from the beginning of the year.
- The insurer anticipates that optimized product and channel mix will support reductions in cost of liability, capitalizing on a new round of Premium Income Ratio (PIR) cuts starting September and a rebound in investment income in 2H24 due to a low comparative base last year.
For valuation, the stock is currently trading at FY24E 0.2x P/EV and 0.6x P/B, supported by resilient 1H results and a recently announced interim dividend of RMB0.2 per share, implying a payout of 14.8%. The 12-month forward target price has been revised to HK$15.5, based on a P/EV approach reflecting improved underwriting and investment outcomes.
Key financial metrics for 1H24 and 2Q24 show profitability and NAV under IFRS 9 & 17, with insurance revenue growing by 16% YoY, insurance service expenses increasing by 29.3% YoY, and net insurance finance income decreasing by 24.4% YoY. Net investment results saw a 73.4% YoY increase, while operating profit before tax rose by 27.6% YoY to RMB47.9 billion.
China Life is expected to maintain a strong performance, with a focus on improving margins through product and channel optimization, leveraging favorable market conditions post-PIR cuts, and continuing to enhance investment income in the second half of 2024.
