Company Reports

We retain our fair value estimate of HKD 96 following AIA’s respective interim 21% and 47% year-on-year growth in value of new business, or VNB, on an actual currency basis, and net profit. The results are on track to deliver our full-year growth projections at 19% and 48% in VNB and net profit, respectively. Positively, management lifts operating profit after tax, or OPAT, per share growth target to 11% from 9% from 2023 to 2026. Though the stronger-than-expected guidance lifted AIA shares by 5.6% on Aug. 22, the stock is still trading at a historical low 1.1 times 2024 embedded value equity per share. Shares have declined 23% year to date as investors remain worried about macroeconomic headwinds including depreciating local currencies, stock market volatility, and falling interest rates in China that hamper growth in embedded value and VNB in 2024.

As a leading life insurer in the Asia-Pacific region, AIA enjoys an entrenched position in most markets in which it operates. While we expect regional growth to be sluggish over the next 12 months, we believe AIA's established and broad distribution networks, strong product offerings, and diversified geographic mix should enable the company to maintain decent sales growth and support a valuation premium over peers.

As a leading life insurer in the Asia-Pacific region, AIA enjoys an entrenched position in most markets in which it operates. While we expect regional growth to be sluggish over the next 12 months, we believe AIA's established and broad distribution networks, strong product offerings, and diversified geographic mix should enable the company to maintain decent sales growth and support a valuation premium over peers.

AIA Group experienced a strong first-quarter 2024 performance led by robust growth in the value of new business. This, coupled with news of an enlarged share buyback, lifted AIA shares by 6.1%. Despite the share price runup, AIA is trading at a historical low of 1.1 times 2024 embedded value equity per share, and we believe the stock is undervalued. While we lift our VNB forecast, we retain our fair value estimate of HKD 96 per share as our full-year net profit growth and embedded value growth projections are largely unchanged at 34% and 5.5% year on year, after accounting for higher-than-expected medical claim expenses.

AIA Group’s 2023 growth in value of new business on an actual exchange-rate basis was in line with our expectation at 30% year on year. The results again reflect AIA’s resilient and strong new business growth across Asia, with mainland China, Hong Kong, the Association of Southeast Asian Nations excluding Vietnam, and India all delivering double-digit value of new business growth in 2023. However, despite the strong growth and management’s firm commitment to steadily increase the dividend, AIA’s share price dropped 4% on the first day following the results announcement. We believe the market is ignoring the recovery of mainland Chinese visitor, or MCV, business and overconcerned about the asset risk and slowing macro conditions in China. We retain our HKD 96 fair value estimate. AIA is trading at a historical trough of 1.2 times 2024 embedded value equity per share, and we think the shares are undervalued.

AIA Group’s financial highlights showed third-quarter value of new business, or VNB, on an actual exchange-rate basis grew strongly at 34% year on year from 15% in the second quarter. Cumulative nine-month VNB growth climbed to 33% from 32% in the first half. We increase our 2023 projections for annualized new premium, and VNB growth by 3 and 5 percentage points, respectively, to 45% and 30%, following the higher-than-expected third-quarter growth. We keep our HKD 96 fair value estimate and we think AIA remains on track to deliver our 2023 growth forecasts for embedded value, or EV, and operating profit at 12% and 2%, respectively, year on year. AIA is trading at 1.4 times 2024 EV equity per share and we believe the stock is undervalued. The results confirm our view that concerns about AIA China’s slowing VNB growth and potential margin dilution from increased sales of saving products were overblown. We continue to expect AIA’s premier agency force and ongoing mainland China expansion plan to support a better-than-peer long-term growth.

China Life‘s year-to-Sept. 30 year-on-year growth in premium slowed to 4.5% from 5.6% in August. As the first insurer to report monthly premium growth, the performance generally tracks our expectations. The year-on-year contraction in September premium narrowed to 7% from 10% in August on low base in the year-ago period. We expect slowing sales for other Chinese life insurers in September and October due to weakened product demands after the last-batch sales of 3.5% guaranteed rate savings products in July. We also expect ongoing regulation of bancassurance sales (an arrangement between a bank and an insurance company through which the insurer can sell its products to the bank's customers) to adversely affect September and October sales, but the impact should be small given these two months usually report weak sales. Despite the industrywide trend of slowing sales, we expect Ping An and PICC Life to see less downward pressure supported by lower base in the second half of 2022. We expect third-quarter new business value, or VNB, to decelerate significantly from the second quarter’s level, but fourth-quarter growth should rebound on low base and the resumption of bancassurance sales.

AIA Group’s first-half value of new business, or VONB, growth on an actual exchange rate, or AER, basis further accelerated to 37% year on year, ahead of our expectation. But we expect growth momentum to moderate in the second half of 2023 on a higher base, so we keep our 2023 VONB growth forecast at around 24%. As results were largely in line, we retain our HKD 96 per share fair value estimate for AIA. The stock is undervalued, trading at 1.4 times 2023 embedded value, or EV, equity per share. Investor sentiment for AIA was pressured by fears for China market VONB margin dilution given the customer trend toward high-yield savings products and AIA’s increasing sales from bancassurance and lower-tier cities. However, we believe its premier agency force and ongoing mainland China expansion plan should support better-than-peer long-term growth.

In light of stronger-than-expected mainland Chinese visitor, or MCV, data in the second quarter, we modestly lift our full-year premium growth assumption for AIA by 2.5 percentage points to reflect faster-than-expected recovery in the MCV business to 50% of 2019’s level, from 30% in our previous assumptions. We retain our fair value estimate for AIA at HKD 96 per share, however, as the change is not enough to trigger valuation adjustment. The stock remains undervalued, trading at 1.6 times 2023 price/embedded value, or EV, versus its past-six-year average price/EV ratio of 1.9 times. Compared with the 0.2 times to 0.6 times 2023 price/EV ratios of the undervalued Chinese peers, we believe AIA’s valuation premium is justified by its superior agent force, above-peer new business margins, and prudent management of product mix. In the longer run, we believe its ongoing geographic expansion in China should support a stronger-than-peer new business growth momentum. We expect EV growth recovery will be at a mild pace of midsingle digits in 2023, on lower return on EV and smaller contribution from value of new business, or VNB.

AIA has strong momentum in most markets in which it operates in the Asia-Pacific region, thanks to a reputable brand, successful strategic focus, and strong agency force.

AIA was up slightly in midday Hong Kong trading following decent first-quarter financial highlights. The value of new business growth accelerated to 23% on an actual exchange rate basis. With the strong start to the year, we now expect AIA’s full-year VONB to grow at a high-teens pace following a 4-percentage-point increase in our premium growth assumption for 2023. However, our fair value estimate stays at HKD 96, given the lower embedded value contribution from VONB and reduced assumption on returns. AIA is fairly valued, trading at 1.7 times 2023 embedded value equity per share, versus the 0.2-0.6 times of Chinese peers. Though we expect strong momentum to continue, we believe the current valuation premium already reflects its resilient and stronger-than-peer VONB growth in 2023. We expect embedded value to recover at a mid-single-digit pace in 2023.

We maintain our HKD 96 per share fair value estimate following AIA Group's 2022 results. Value of new business, or VONB and operating profit after tax, or OPAT, were slightly below our expectation, but our major assumptions remain unchanged. 2022 VONB contracted 8% year on year, or by 5% in constant currency. OPAT recorded slower but nonetheless resilient growth of 3% in constant currency terms, versus 6% growth in 2021. As expected, embedded value, or EV, declined on investment losses and the effect of AIA's share buyback. These reduced opening EV by 7% and 5%, respectively, leading to a 5.5% year-on-year decline. On a per-share basis, EV was down 2%.

AIA Group’s third-quarter financial highlights reported the year-on-year contraction in nine-month valuation of new business, or VONB, on an actual exchange rate, or AER, basis declined to 11% from 15% in the first half. The results reflected resilient demands for life and health insurance products across AIA’s geographically diversified portfolio of business in Asia. Notably, AIA achieved positive VONB growth in all major markets despite challenging macroeconomic conditions in mainland China and Hong Kong. This resulted in a 1% year-on-year VONB growth in the third quarter, first turning positive from the 19% and 10% respective declines in the first and second quarters. Despite the healthy growth momentum, we expect recent further weakness in local currencies against U.S. dollars across AIA’s major markets except for Hong Kong to take a toll on new business growth and investment income. To factor in local currency depreciation and potential disruptions to sales activities in mainland China as result of its firmly held zero COVID-19 policy, we reduced our 2023 premium growth and investment income projection by 3 percentage points and 7%, respectively. The assumption change resulted in a 10% decline in our fair value estimate for AIA to HKD 96 per share.

AIA has strong momentum in most markets in which it operates in the Asia-Pacific region, thanks to a reputable brand, successful strategic focus, and strong agency force.

We maintain our HKD 107 per share fair value estimate following AIA Group’s second-quarter results. Value of new business and operating profit after tax, or OPAT, performance were in line. Six-month VONB contracted 15% year on year on actual currency rates, or a 13% decline on constant currency rates. OPAT remained resilient despite a challenging market environment, growing 4% on constant currency rates, versus 5% growth in the year-ago period. However, embedded value, or EV, declined 3.6% year on year amid mark-to-market investment losses and share buyback, which reduced opening EV by 6% and 2% respectively, leading to a 2.9% decline in EV equity per share. Positively, decline in second-quarter VONB narrowed to 10% from 19% year-on-year contraction in the first quarter. Second-quarter VONB margin also improved to 56.4% from 54.4% in the first quarter. Six-month VONB margin declined 3.8 percentage points to 55.2% from the year-ago level. Management indicated the unfavorable product mix shift was the main driver of the group’s lower margin while product mix in other markets remained largely unchanged.

AIA has strong momentum in most markets in which it operates in the Asia-Pacific region, thanks to a reputable brand, successful strategic focus, and strong agency force.

AIA Group’s first-quarter financial highlights reported an 18% year-on-year contraction in value of new business, or VONB, and a 5% increase in total weighted premium income on a constant currency basis. The results highlighted resilient demands for life and health insurance products across AIA’s geographically diversified portfolio of business across Asia. Despite the COVID-19 outbreak, the Hong Kong market achieved a positive year-on-year growth in VONB, beating our expectation for a decline. The growth was supported by growing demands in both Premier Agency and partnership channels, and a substantial increase in VONB from sales to mainland Chinese visitors in Macau.

We maintain our HKD 107 per share fair value estimate for AIA Group following the company's solid 2021 results, with value of new business, or VONB, growing 22% year on year on an actual currency basis, exceeding our previous expectation for 20%. Embedded value, or EV, increased 11.6% from 2020, tracking in line with our full-year expectation for 11.5% growth.

AIA has strong momentum in most markets in which it operates in the Asia-Pacific region, thanks to a reputable brand, successful strategic focus, and strong agency force.

AIA Group’s third-quarter financial highlights reported year-on-year VONB growth of 15% on a constant currency basis and 20% on an actual currency basis for the first nine months, which came in line with our full-year VNOB growth forecast of around 20%. As expected, growth in third-quarter VONB slowed significantly to 4% on an actual currency basis from the 29% growth in the first half. The slowdown was attributable to a high base in the third quarter of 2020, which benefited from a rebound in policy sales right after the unlock of COVID-19 containment measures, and the COVID-19 rebound in certain provinces in China and some ASEAN markets in the past quarter. Despite the decelerating growth, AIA was able to expand its premium agent force and agent productivity in major markets, including China, Hong Kong, Thailand, Singapore, and Malaysia. Given that results were largely in line, we maintain our HKD 107 per share fair value estimate.