Orient: First gives SUNSHINE INS (06963) a "Buy" rating with a target price of HKD 5.35.

Orient released a research report, initiating coverage of SUNSHINE INS (06963) with a "Buy" investment rating and a target price of HKD 5.35. The firm anticipates that SUNSHINE INS Group will achieve net profit attributable to shareholders of RMB 6.43 billion, 7.41 billion, and 8.26 billion from 2026 to 2028, representing year-on-year growth of 1.9%, 15.3%, and 11.4% respectively; the embedded value is expected to be RMB 134.48 billion, 152.13 billion, and 173.43 billion, with year-on-year growths of 11.3%, 13.1%, and 14.0%. The firm believes that the company's life insurance bancassurance channel will drive fast growth in new premium income and new business value (NBV), while the core underwriting profitability of property insurance improves, and the expansion of investment assets along with enhanced equity allocation increases earnings resilience. Orients main viewpoints are as follows: Bancassurance channel drives simultaneous growth in scale and value of life insurance In 2025, Sunshine Life's total premium income is expected to grow by 27.5% year-on-year to RMB 102.61 billion, with NBV increasing by 48.2% year-on-year to RMB 7.64 billion, maintaining a NBV margin of 16.9%. Among this, new premium income from the bancassurance channel is projected to increase by 69.0% year-on-year to RMB 34.09 billion, and bancassurance NBV is expected to rise by 64.6% to RMB 4.72 billion, raising its share of Sunshine Life's NBV to 61.8%, contributing significantly to the overall NBV growth. The expansion of new bancassurance business and stable value rates together drive growth in the scale and value of life insurance. Guarantee insurance disrupts overall underwriting results of property insurance, while the profitability of core insurance types remains solid In 2025, Sunshine Property & Casualty's comprehensive cost ratio is expected to rise by 2.4 percentage points year-on-year to 102.1%, primarily influenced by the strengthening of reserves for financing guarantee insurance; excluding guarantee insurance, the comprehensive cost ratio is expected to decrease by 1.0 percentage point year-on-year to 98.9%, with underwriting profit increasing from RMB 0.07 billion to RMB 0.49 billion. The comprehensive cost ratios of auto insurance and accident as well as short-term health insurance are expected to be 98.2% and 95.6%, respectively, achieving underwriting profits of RMB 0.48 billion and RMB 0.29 billion, continuing to be the main sources of the company's underwriting profit. Investment asset expansion and enhanced equity allocation increase earnings resilience, with the group's embedded value continuously accumulating In 2025, the company's investment assets are projected to grow by 16.7% year-on-year to RMB 640.20 billion, with the proportion of equity investments increasing by 1.4 percentage points year-on-year to 13.7%, approximately 70% of stock assets allocated to FVOCI accounts. The dividend income from high-dividend assets and unrealized gains in FVOCI accounts alleviate the downward pressure on fixed-income yields, with the overall investment return expected to rise by 0.5 percentage points year-on-year to 4.8% while the comprehensive investment return remains at 6.1%; the group's embedded value is expected to grow by 4.3% year-on-year to RMB 120.78 billion. Risk warnings Long-term interest rates decline beyond expectations; significant fluctuations in equity markets; reform effectiveness in life insurance falls short of expectations; product structure transformation does not meet expectations; property insurance comprehensive cost ratio rises beyond expectations; resident income does not meet expectations; risks from changes in regulatory policies; risks from adjustments to actuarial assumptions.