Model adjustment
- We adjust our valuation models to reflect 2023’s investment return movements in the equity and bond markets, and premium growth trends.
- Our FY23F EPS is cut by 5%, and FY24F-25F EPS is raised by 2% and 1%, respectively, based on the new IFRS 17 and IFRS 9 accounting standards.
- We reiterate Add rating with a lower TP of HK$23.30
Incorporating 2023’s investment markets
We adjust our models to reflect 2023’s investment return movements in the equity and bonds markets. As a result, our FY23F EPS forecast is cut by 5%, and FY24F and FY25F EPS forecasts are raised by 2% and 1% respectively (Fig 1). These EPS forecasts are based on the new accounting standards, International Financial Reporting Standards (IFRS) 17 and 9. Our FY24F-25F insurance revenue growth (Fig 4) assumption consists of FY24F-25F life insurance revenue growth of 0-3% and property and casualty (P&C) insurance revenue growth of 6-8%. We expect a rebound in investment yields (FY23F: 2.9%; FY24F: 4.0%; FY25F: 4.4%; Fig 4) to be the key drivers of net profit growth in FY24F-25F.
Reiterate Add rating; TP cut to HK$23.30
We cut our SOP-based TP to HK$23.30, from HK$32.10 previously, due to our higher beta assumption of 1.75 (previously 1.35; Fig 2) to reflect a more uncertain macroeconomic outlook and concerns about its long-term investment returns given falling bond yields. We reiterate our Add rating given that insurance demand remains strong in FY24F-25F as substitute products either offer lower yields or are seen as too risky. Potential re-rating catalysts: stronger premium growth, and higher investment returns. Key downside risks: senior management changes and weaker-than-expected bancassurance growth should banks switch their focus to selling products other than bancassurance.
