Larger-Than-Peer Decline in CPIC's New Business Margin, Reduced Dividend Payout

We reduced our fair value estimate for CPIC to CNY 26 from CNY 30 per A-share and HKD 30 from HKD 36 per H-share after disappointing 2021 results. Total revenue and net profits were up 4.4% and 9.2%, respectively, year on year but the trend of new business value, or NBV, was disappointing, declining 25%, missing our expectation of around 20% decline. We attributed this to a larger-than-peer contraction in NBV margin due to product mix shift toward low-margin endowment insurance and falling sales of upgraded critical illness insurance after the change in CI definitions. Another disappointment was the reduction in dividend payout ratio to 36% from 50% in 2020 with absolute dividend per share declining by 17% against last year to CNY 1 per share. Management explained the decision was made in consideration of policy uncertainties during the transition period for adoption of the China Risk-Oriented Solvency System, or C-ROSS II, framework starting Jan. 1 2022, and future capital expenditure for technology, healthcare, and retirement service investments. Our new valuation factored in lower assumption for underwriting profitability in 2022 and 2023 and slower life premium growth during our forecast period.