China Life Insurance – Benefiting from the Rising Demand for Protection and Wealth Management

China Life Insurance, one of China’s leading life insurance providers, continues to deliver sturdy results with a promising outlook. Despite current market challenges, including volatile equity market conditions and low long-term bond yields, China Life has maintained its performance by adapting to regulatory shifts favoring long-term and protection-focused products.

Sturdy Financial Performance in 1H24:
- Profit after tax and minority interests (PATMI) increased by 6% year-on-year (YoY) to CNY 38.3 billion.
- Revenue grew by 26% YoY to CNY 234.2 billion, driven by a significant rise in investment income (+140%) and an increase in insurance revenue (+16%).
- China Life introduced interim dividends for the first time, declaring CNY 0.20 per share.
Growth in New Business Value (NBV):
The company’s New Business Value (NBV) grew by 19% YoY to CNY 32.3 billion, primarily driven by its individual agent channel. The agent channel saw productivity gains despite a slight decline in its salesforce from 634,000 to 629,000 agents.
Strong Solvency Ratios:
Although China Life’s core solvency margin ratio and comprehensive solvency margin ratio declined half-on-half, they remain well above regulatory minimum thresholds, at 151.9% and 205.2%, respectively. These figures indicate that the company is well-capitalized to meet its obligations and sustain its operations.

Valuation and Financials:
China Life Insurance is currently trading at HKD 11.38, with a fair value target of HKD 14.95. The stock offers an attractive price-to-earnings (P/E) ratio of 5.9x for FY24 and a price-to-book (P/B) ratio of 0.6x. With a projected dividend yield of 4.5% for FY24 and expected earnings per share (EPS) growth, the stock presents a compelling buying opportunity for long-term investors.

Key Ratios (FY24E):

P/E: 5.9x
P/B: 0.6x
Dividend Yield: 4.5%
ROE: 10.0%

Share Price Catalysts:

Continued growth in NBV driven by the individual agent channel and bancassurance.
Further improvement in profitability from better management of agent productivity.
An A-share market rally could enhance investment gains and boost valuation.

Other Key Insights:

ESG Improvements:
China Life’s Environmental, Social, and Governance (ESG) rating has been upgraded, reflecting better talent management and improved responsible investment practices. The company’s lower employee turnover rate and voluntary pension benefits contribute to its strong Social pillar performance.
Risks to Consider:
Investors should remain cautious of potential risks, including corrections in the A-share equity market, macroeconomic deterioration, and regulatory challenges. Lower bond yields may also pose headwinds for earnings, and limited disclosure on absolute NBV could make it difficult to assess sustainability.

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