Date of Report
Thursday, 03 October 2024
Broker Name
UOB Kay Hian
Strong Value of New Business Growth
AIA delivered impressive value of new business (VONB) growth of 25% in the first half of 2024, surpassing UOB Kay Hian’s expectations of a 20% increase. This growth was driven by robust sales performance, with annualized new premiums (ANP) increasing by 17% year-on-year (yoy) and a margin expansion of 3.3 percentage points (ppt) due to a favorable product mix shift and repricing in both Hong Kong and Mainland China.
Sales Momentum in Key Markets
The company continued to see resilient insurance sales in the third quarter of 2024, particularly in Hong Kong and Mainland China. The combination of strong sales growth and favorable market conditions in these regions underscores AIA’s solid business foundation and ability to capture market demand.
Positive Impact of Fed Rate Cuts
AIA stands to benefit from the beginning of the Federal Reserve’s rate cut cycle. A 50 basis points decrease in interest rates and a 5% depreciation of the US dollar could increase AIA’s embedded value by 0.8% and 1.8%, respectively. Additionally, the recent strong performance in both the China and Hong Kong stock markets could positively affect AIA’s investment returns, as equities account for 22% of its total invested assets and 12% of AIA China’s investment portfolio.
Valuation and Target Price
UOB Kay Hian has maintained its “BUY” rating on AIA, with a revised target price of HK$96.00, reflecting a 1.9x 2024 forecast price-to-embedded value (P/EV) multiple. This adjustment is based on a lower risk-free rate of 3.5%, down from 4.0%. Despite a 30% surge in AIA’s share price over the past month, the stock remains attractive, trading at 1.4x its 2024F P/EV, which is still below its historical average. The company also offers a decent shareholder return yield of 7.2%.
Catalysts for Share Price Growth
Key events that could further boost AIA’s share price include continued strong VONB growth in the second half of 2024, supported by margin improvements. This positive sales momentum, combined with a favorable interest rate environment, creates a strong growth outlook for the company.
Timeline for Growth
The company is expected to maintain its growth trajectory in the second half of 2024, driven by strong insurance sales and favorable economic conditions in its key markets. Investors should monitor AIA’s performance closely as these factors continue to support its financial strength and market position.
Investment Outlook
AIA’s combination of strong sales growth, expanding margins, and favorable market conditions in Hong Kong and Mainland China makes it a compelling investment opportunity. With robust VONB growth and a positive outlook for the second half of the year, AIA is well-positioned to deliver solid returns for investors.
