Date: 2 October 2024
Broker: OCBC Investment Research
Company Overview
China Life Insurance is a leading life insurance company based in Beijing, China. It is a core member of China Life Insurance (Group) Company, a Fortune Global 500 company. The company provides individual and group life insurance, annuity, accident, and health insurance. In addition to insurance, it has expanded into related areas, holding a controlling stake in China Life Pension Company Ltd and a significant stake in China Life Property and Casualty Insurance Company Ltd.
As of 31 December 2023, China Life Insurance had approximately 328 million long-term individual and group life insurance policies, annuity contracts, and long-term health insurance policies in force. Its distribution network is the most extensive among all insurers in China, comprising individual agents, direct sales representatives, and account managers in bancassurance channels.
Investment Thesis
China Life is poised to benefit from China’s growing middle class and their increasing demand for protection and wealth management services. The company’s strong domestic market share of approximately 15-20% positions it well to capitalize on this trend. However, in the near term, volatile equity markets and historically low Chinese government bond yields may impact its performance. Despite these challenges, the company is expected to focus on improving the quality and productivity of its agent force to enhance new business value (NBV) growth.
Recent Developments and Government Support
China Life is set to benefit from recent Chinese government policy measures designed to support the economy and equity markets. Initiatives like the establishment of a CNY500 billion swap facility by the People’s Bank of China (PBoC) for brokers, funds, and insurance companies are expected to boost equity investments. Other policies, such as facilitating long-term funds through stock index exchange traded funds (ETFs) and encouraging insurance companies to set up private funds for stock investments, are also favorable for China Life.
These actions have already helped to improve market sentiment and liquidity, which should positively impact China Life’s investment income. As of 30 June 2024, 19.6% of the company’s investment portfolio was in equity financial assets, including stocks, equity funds, and private equity investments—higher than competitors Ping An Insurance and China Pacific Insurance Group.
Financial Performance
As of August 2024, China Life’s accumulated premium income rose by 5.9% year-on-year (YoY) to CNY564.9 billion, an improvement compared to the 4.1% increase recorded in the first half of 2024. The demand for traditional insurance savings products remains healthy, despite the lowering of guaranteed rates, due in part to banks cutting their deposit rates.
In terms of profitability, China Life’s net business value (NBV) grew by 18.6% YoY to CNY32.3 billion in the first half of 2024. This growth was driven by increased productivity from its agent force (+12.4% YoY) and a rise in the percentage of high-performance agents by 1.9 percentage points. China Life’s management has raised its core earnings forecast for FY24 and FY25, reflecting higher expected investment income.
Financial Summary
- Revenue (FY23): CNY344.7 billion
- Revenue (FY24E): CNY365.6 billion
- Revenue (FY25E): CNY383.7 billion
- PATMI (FY23): CNY46.2 billion
- PATMI (FY24E): CNY51.2 billion
- PATMI (FY25E): CNY56.6 billion
- Dividend per Share (FY23): CNY0.4
- Dividend per Share (FY24E): CNY0.5
- Dividend per Share (FY25E): CNY0.6
- P/E Ratio (FY24E): 24.3x
- P/B Ratio (FY24E): 2.4x
- ROE (FY23): 11.0%
ESG Developments
In September 2024, China Life’s ESG rating was upgraded, primarily due to improvements in cybersecurity and governance practices. The company’s information security system is certified under the ISO 27001 standard, ensuring regular external audits. China Life also conducts group-wide training on data privacy and has policies in place for vendors. These initiatives are critical given the sensitivity of client data.
Although China Life has improved its business ethics and cybersecurity practices, its governance score remains average compared to global peers. Related-party transactions with its controlling shareholder and its status as a state-owned enterprise, where government representatives hold the CEO and Chairperson roles, present potential governance concerns.
Risks and Challenges
China Life faces several risks that could impact its future performance, including:
- Equity Market Volatility: Sharp corrections in the A-share equity market could negatively affect investment income and valuations.
- Interest Rate Risk: Falling interest rates could reduce investment returns, particularly for government bonds, affecting profitability.
- Macroeconomic Factors: Broader economic deterioration or regulatory changes may also impact performance.
- Disclosure Challenges: Limited transparency around asset/liability management and new business value growth could make it harder for investors to assess sustainability.
Potential Catalysts
Several factors could drive future performance, including:
- Stronger NBV Growth: Continued improvement in agent productivity and growth in the bancassurance channel could accelerate NBV growth.
- Higher Bond Yields: An increase in bond yields could lead to lower reserve charges, improving life profits and overall group earnings.
- A-Share Rally: A continued rise in A-share markets could boost investment gains and positively impact China Life’s valuation.
