NCI’s 2022 New Business Value Growth Weaker Than Peers

We lower our fair value estimate for no-moat New China Life Insurance 01336, or NCI, to HKD 26 per H share and CNY 23 per A share to factor in our weaker assumptions for premium income and underwriting margins in 2023 and 2024. NCI’s full-year 2022 results continued to reflect significant challenges in ongoing agent reform, and it experienced larger-than-peer declines in both new business value, or NBV, and agent headcount. Full-year net profit declined 34% from 2021, driven by a 3% and 29% year-on-year contraction in premium income and investment income, respectively. Dividend per share also declined 25% to CNY 1.08 per share. We think the market’s pessimism is fully reflected in its current H share price, which prices NCI at below 0.2 times 2023 price/embedded value, but we also don’t see any urgency in buying the shares with earnings performance likely to lag peers in 2023.

In contrast to the improving NBV growth trend of peers in the second half of 2023, NCI’s full-year NBV declined 59% year on year, deteriorating from the 48% decline in the first half. NCI’s agent NBV growth was more negatively affected than peers in 2022 given their distributional advantages are mainly in less developed third- and fourth-tier cities where consumption recovery may lag that in the first- and second-tier cities. We believe overall agent productivity and qualified agent headcount are two important leading indicators for future development of NCI’s agent force. We expect the marginal improvement in agent productivity to continue due to ongoing cleanup of unqualified or inactive agents in coming quarters, but NCI’s NBV growth in 2023 will still face significant headwinds.