China Life reported mixed1Q26results,with net profit down32.3%YoY to RMB19.5bn,below our estimate of RMB20.4bn,mainly due to fair value losses from TPL equitiesamid equity market turbulence.Net asset value modestly grew0.5%from year-start toRMB598.3bn,supported by higher retained earnings.NBV surged75.5%YoY in1Q26,significantly beating market and our estimates,reflecting continued progress in shiftingunderwriting toward longer-duration and regular-paid products.Premiums from long-term new policies reached a record RMB85.7bn(+29.9%YoY),the highest since2017.Within this,first-year regular premiums(FYRP)grew41.4%YoY,with the share of10yr+FYRP rising4.4pct YoY.Participating FYRP accounted for over90%of total FYRP in1Q26,implying a surge from51.7%in1Q25.Mgmt.highlighted in the call that bothagency and bancassurance NBV margins expanded YoY in1Q26,driven by improvedunderwriting mix and lower guaranteed costs,with the agency showing a larger marginincrease than bancassurance.On the investment front,the insurer scaled up its bondallocation in1Q26,with the YTD additions exceeding the full-year increase of2025,permgmt.Looking ahead,we remain constructive on an equity rebound to bringearnings upside for China Life in2Q26E,in addition to its1)leading asset-liabilityduration match;2)a more balanced product mix(~1/3from traditional/par/protection-typed policies);and3)continued NBV uptick with guaranteed costs already reduced tobelow2.9%by1Q26.Maintain BUY,with our12-month forward TP at HK$34(previous:HK$33),mainly reflecting a stronger CNY/HKD exchange rate.\r
1Q26Key highlights:\r
1)NBV surged75.5%YoY,a strong beat to market estimates.In1Q26,bothagency and bancassurance delivered double-digit YoY NBV increases according tomgmt.,supported by strong new business sales and margin expansion.FYRP rose41.4%YoY,a key driver for long-term first-year premium growth(+29.9%).Beyondrobust sales momentum,mgmt.noted that the reasons for NBV margin expansionwere twofold:a)the rollout of longer-duration products,and b)a rising mix of floating-yield,i.e.participating,policies,whose FYRP share surged to over90%(vs.1Q25:51.7%)of total in1Q26.Looking ahead into2026E,we expect full-year NBV torise20.3%YoY,despite against a high base in3Q26E.\r
2)YTD bond investment surpassed the total increase in2025.On investmentfront,China Life scaled up its bond allocation in1Q26to capture the periodic peakin long-term yields.By2025,bonds accounted for57.4%of total investment assets,down1.7pct YoY.With a steepening yield curve expected by mgmt.,we seepotential for a further increase in the bond allocation share as of end-FY26E.3)Life core solvency up28.1pct from year-start.Life core solvency ratio rose28.1pct from year-start to156.87%,marking a notable return to the level of2024(153.34%).Comprehensive solvency ratio increased28.3pct from year-start to202.31%,surpassing the200%threshold.The improvement is primarily attributableto the reclassification of bonds under amortized cost,which allows related assets tocapture fair value upside amid a prolonged low-interest rate environment,therebyboosting core and actual capital levels.Mgmt.noted in the call that maintainingcore/comprehensive solvency ratio above150%/200%would support new businessexpansion and allow greater investment flexibility.\r
4)Equity exposure is expected to remain relatively stable in the near term,butwith room for a future increase,according to mgmt.As of FY25,stocks accountedfor11.3%of total investment assets,with a TPL/OCI mix of72%/28%.\r
5)Negative income tax expense lifted net profit.In1Q26,China Life recorded anegative RMB608mn income tax expense,as tax-exempt revenues exceeded pre-tax income,per mgmt.,resulting in no current tax payable.The reversal of deferredtax assets(DTA)under prudent mgmt.guidance contributed to this negative taxexpense,lifting1Q net profit.We view this as a one-off adjustment,with nosustainable impact on the insurer’s underlying fundamental value.\r
Valuation:The stock is trading at0.44x FY26E P/EV and1.0x FY26E P/B,with ayield of3.6%(CMBI est).We remain positive on the prospect of an equity market\r
MORE REPORTS FROM BLOOMBERG:RESP CMBROR http://www.cmbi.com.hk\r
rebound in2Q26E to drive an earnings upside,alongside continued\r
reduced guaranteed cost of liability(1Q26:below2.9%)and a balanced productMaintain BUY,with our TP at HK$34(from HK$33),implying0.53x FY26E\r
Key risks:1)intensified equity market volatilities;2)a prolonged low-interestenvironment with significant interest rate shocks;3)slower-than-expectedbusiness sales;and4)margin deterioration due to expense overruns,etc.
