ZhongAn Earnings: Underwriting Margins Remain Solid; FVE Reduced on Slower Future Premium Growth
We reduced fair value estimate for no-moat ZhongAn Insurance, or ZA, to HKD 25 per share from HKD 28 to reflect slower future premium growth assumptions. ZA reported 2023 net profit of CNY 4.1 billion, versus a net loss in 2022. Excluding one-off investment gain of CNY 3.8 billion after the revaluation of Zhong An International, net profit would be CNY 294 million, missing our CNY 450 million forecast. However, full-year premium growth of 25% year on year was in line with our expectation, underlining ZA's solid growth momentum fueled by innovative insurance categories in health and digital lifestyle ecosystems. But we expect the current worsening retail credit cycle and increasing advertising expense will weigh on ZA's near-term overall premium growth and underwriting profitability in consumer finance business. Thus, we reduced premium growth forecasts by 2.5 and 1.5 percentage points to 16% and 15% in 2024 and 2025.