CPIC alert:1H17-Key takeaways from analyst meeting

New management stays committed to the core insurance business

    CPIC held a conference call on their 1H17results today. The key questionsfocused on the company strategy after the management change. The newchairman, Mr. Kong, reconfirmed the unchanged strategy to focus on coreinsurance business, and identified five initiatives (talent, digitalization, synergy,control and diversification) to enhance business development. Key takeawaysas follow:

    On Life business, management noted the improvement in NB margin (from15.4% in 1H12to 40.6% in 1H17) to continue going forward, albeit atslower rate given the high base. The company will continue to increase theproportion of LT protection policies (by increasing product diversity andimproving sales tactics) and lengthen the payment duration. In terms ofproducts, the company believes customers’ demand for protection is forboth life and wealth, and the strong growth in par products in 1H17catered to customers’ need for financial protection. For reserve charges in2H17E, the management noted if interest rate were to stay at current level,the impact from reserve charges should be small.On agency, with strong agency expansion in 1H17(+33.2% hoh), thecompany will focus more on quality in 2H17E. The key focus would beproductivity improvement, self-operation of managers and targeting salestechnique.On auto, the management expects further auto deregulations to lead tomoderate deterioration in combined ratio. The company will stick todisciplined underwriting, and focus more on core channels (telemarketing& internet, cross-selling and dealerships) to improve efficiency.On investments, the significant increase in WMPs in 1H17(+79.5% hoh)was a strategic move to take advantage of the ST interest rate hike, andhas average yield of ~5%. CPIC has lagged peers in NSI over the past fewyears, and the strong growth in 1H17was a catch-up.

    Forecast revisions

    Following a strong 1H17results, we lift our 2017/18E VNB by 10.2%/9.0% toRmb28,407mn/35,771mn and are raising our Group EV by 6.1%/6.0%, Life EVby 3.2%/3.9%, respectively, resulting in a 8.0% increase in our target price toHK$47.5/shr. Our revised forecasts imply 2017E/18E VNB growth of49.2%/25.9% (2H17E: +30.8% yoy) and Group EV growth of 19.7%/16.8%, LifeEV growth of 22.5%/24.0%. We see current valuation at 1.3x/1.4x for H/A-shrundemanding. Maintain Buy.