New China Life Earnings: Investment Gains Boost Net Profit, but Agent Channel Pressured

New China Life Insurance’s 01336 first-quarter IFRS 17-based total revenue and net profit increased 17% and 115%, respectively, year on year. The strong profit growth was mainly attributable to the 48% year-on-year increase in investment income as a higher proportion of investment assets were marked to market, which recorded fair value gains in the past quarter under the adoption of IFRS 9. The company did not disclose first-quarter new business value, and we retain our view that its NBV growth in 2023 still faces greater-than-peer pressures as agent headcount has yet to stabilize. Given that the results were largely in line, we retain our fair value estimate for no-moat New China Life at HKD 26 per H share and CNY 23 per A share. We think the market’s pessimism is fully reflected in the H share price, at below 0.2 times 2023 embedded value, but we don’t see any urgency to invest with earnings performance likely to lag peers in 2023.

The results reflected continued headwinds to premium income growth. Unlike peers reporting positive year-on-year growth in first-year regular premium from the agent channel in the first quarter, New China Life’s first-year agent regular premium contracted 26%. We suspect this was caused by a larger-than-peer contraction of 49% in agent headcount during 2022. We expect the firm’s NBV growth to continue be driven by the bancassurance channel, which reported over 75% year-on-year growth in first-year regular premium. In addition, we expect NBV margin to weaken further. First-year regular premium of long-duration policies increased 9% year on year, fueled by the strong sales of savings-type products. However, first-year premium of policies with duration over 10 years contracted 39%. Thus, we expect New China Life to face higher-than-peer NBV growth headwinds, given the unfavorable product mix shift and no signs of agent headcount stabilizing.