Net earnings weakened in 2H; ZA Bank hit first full-year profit

ZhongAn (6060 HK) Net earnings weakened in 2H; ZA Bank hit first full-year profit ZhongAn reported FY25 results with net profit surging 83% YoY to RMB1.1bn, belowourestimateof RMB1.2bn (link), given retreated 2H net earnings of RMB434mn (-21%YoY). Theadjustednet profit amounted to RMB1.8bn, up 198% YoY, helped byapprox.RMB0.7bn one-off impairment loss onthe Group’s joint venture ZhongAn International.CoR improved 1.1pct YoY to 95.8%, a beat to ourestimateof 96.6%(Table), thanks toa strong print in Health and Auto segments, of which CoR was 92.1%/93.1%,-3.6pct/-1.1pct YoY. GWP grew 6.9% YoY to RMB35.7bn,primarily drivenby Auto (+35%)andHealth (+23%). ZA Bank achieved its first full-year profit of HK$17.27mn on back ofitsstrong net revenue of HK$892mn (+62.7%), and improved cost-to-income ratio to 77.7%(-32pct). In July 2025, the insurer completedanH-share placement of US$500mn tofurther optimize its capital structure, bringing down the FY25’sgearing ratio to 45.5% (-8.3pct).LookingintoFY26E, we believe Health and Auto segments will continue to bethe key drivers of UW profit andsalesgrowth, given their broad total addressable market(TAM) and ZhongAn’s potential to further deepen customer wallet share with AIempowerment.Werevise downour TP to HK$18 (previous: HK$23) to factor in a moreprudentequity investment return in FY26E amid heightened stock market volatilities (i.e.CSI 300/HSI-5%/-5%YTD vs. 1Q25: +15%/-1%). Our new TP implies 1.1x FY26E P/B. Target PriceHK$18.00(Previous TPHK$23.00)Up/Downside36.9%Current PriceHK$13.15 China Insurance NikaMA(852) 3900 0805nikama@cmbi.com.hk Stock Data Shareholding Structure Auto and Health led UW profit growth.CoRimproved by 1.1pct YoY to 95.8% inFY25, outpacing our estimate of 96.6%(Table),thanks to UW profit enhancement inHealth and Auto segments,partially offset by CoR deterioration in Consumer Finance.Health CoR slid 3.6pct YoY to 92.1%, driven by 6.7pct YoY improvement in expenseratio given AI-driven cost efficiency, offset by 3.1pct YoY increase in claims ratiodueto an increasing mix of Zhong Min Bao targeting people with substandard risks.HealthGWP grew 22.7% YoY to RMB12.68bn, ofwhichPersonal Clinic Policyand ZhongMin Baomade upRMB8.34bn (66% mix) and RMB2.17bn (17% mix). We see HealthCoR apositivesurprise, as the market previously concerned about the rise inclaimsfollowingthe launch of Zhong Min Bao Mid-to-High Medical Insurance in March 2025.Auto CoR dipped 1.1pct to 93.1%, with expense ratio down 2.8pctYoYto 23.9%,offset by 1.7pct YoY increase in claims ratioto69.2%. Auto GWP grew 34.6% YoYto RMB2.76bn,given expanding NEV penetration (28.3% mix).CoR of DigitalLifestyle and Consumer Financewas99.9%/97%, flat/+6.9pct YoY,due totheproductmix change and a proactivescale-downofinsured loansto RMB22.9bn,-5.4% YoY. Source: HKEx ZA Bank’s first full-year profit validated its business model.ZA Bankachievedits first full-year profit at HK$17.27mn in FY25, aided by 1) robust net revenueofHK$892mn, +62.7% YoY, with interest/non-interest income surging 37%/278% YoYto HK$669mn/HK$223mn respectively; and 2) significantly improved cost-to-incomeratio to 77.7% (-32pct).NIM edged up0.28pct YoYto 2.69% in FY25.Net profit wasHK$17.27mnbyyear-end FY25, reversing from a negative HK$232mn by FY24. Sofar, theHKdigital bank hascovered product suites in tradingHK/US stocks, funds,cryptocurrencies,FX, and H-share IPO subscription, which we think a morediversifiedprofile could enhance the bank’s outlook on non-interest revenue growth.In 2026, weexpect ZA Bank’s net profit to further expand in double-digiton scalability. Source: FactSet Auditor: PwC Relatedreports: 1.1H earnings a clear beat;ZA Bankturned profit faster than expected; raiseTP to HK$23, Aug 26, 2025 2.Placementmaycauselimiteddownside despite short-term volatilities,Jun 26,2025 Revised down TP to HK$18reflecting more prudent investment return.The stockistrading at 0.74x FY26E P/B, close to its 3-yearmean-1STD (0.73x).Weupdate ourmodel by factoringintosolid FY25 results, and roll-forward estimates to FY26-FY28E.On P&C business front, we expect UW margin improvement in FY26E/FY27E bylowering CoR forecasts to 95.6%/95.4% (vs. previous: 96.5%/96.4%) and revisingdown GWP growth to 8%/7% YoY in FY26E/27E(vs. previous: +10%/+10%) giventhe contraction in consumer finance likely to sustain. On investment front, we expectnormalized net investment income from realized gains/(losses) from FY25 (i.e.RMB1.08bn vs. FY24:-459mn).We derive our TP based on SOTPat HK$18,whichincludes1)1.0x P/B for P&C business (referring to 10% discount to 1.1x P/B of PICCP&C); 2) 11.4x P/E for domestic tech export (referring to avg. HSI FY1 trading P/E);3) 1.0x ARR multiplefor overseas tech export; and 4) 1.8x P/B for ZABank, referringto global listed peers (Table), Our new TP implies 1.10x FY26E P/B. Maintain BUY. 3.HK Stablecoins outlook opens up theheadroom for valuation re-rating; upliftTP to HK$20.4, Jun 3 2025 4.Tech export out of t