Broker: UOB Kay Hian
Date of Report: 7 August 2025

AIA Group: Robust Growth Trajectory and Strategic Adaptability Signal Strong Upside in 2025

Investment Thesis: Solid Upside Potential for AIA Group

AIA Group Limited (HK: 1299), a leading provider of life, medical, and health protection insurance products across Asia, continues to deliver robust growth in its core markets. UOB Kay Hian maintains a “BUY” rating on AIA, setting a target price of HK\$91.00, representing a 23.7% upside from the current price of HK\$73.55. The report highlights AIA’s resilient performance, strategic market expansion, and ability to navigate regulatory shifts, positioning the group for continued outperformance.

Key Highlights at a Glance

• Share Price: HK\$73.55
• Target Price: HK\$91.00
• Market Cap: HK\$722.6bn (US\$98.4bn)
• 2025F EV/Share: US\$7.26
• 2025F LCSM Coverage Ratio: 223.2%
• 52-Week Price Range: HK\$75.45 / HK\$48.60
• YTD Performance: +30.6%

1H25 Results Preview: Strong VONB and Earnings Momentum

AIA is poised to report a 16% year-on-year increase in Value of New Business (VONB) in 1H25, propelled by robust volume growth in China and Hong Kong and further margin expansion. Operating Profit After Tax (OPAT) per share is expected to grow by 10% year-on-year, aligning with management’s targets. No additional share buybacks are anticipated for 2025 beyond the completed US\$1.6bn program, but clarity on 2026 shareholder returns may serve as a catalyst for future re-rating.

VONB and Margin Trends

• 1H25 VONB Growth: 16% YoY expected, up from 13% in 1Q25.
• VONB Margin: Projected to rise by 1.5 percentage points year-on-year, following a 3.3ppt lift in 1Q25.

AIA China: Strategic Product Shift and Expansion

• Business Mix Evolution: Despite a 7% YoY VONB decline in 1Q25 (driven by changes in economic assumptions amid falling China bond yields), AIA China has successfully shifted its new business mix toward participating products, now accounting for over 80% of long-term savings VONB in its Premier Agency channel.
• Geographical Expansion: Operations commenced in four new geographies in March and April 2025, following regulatory approvals.
• China Post Life Capital Injection: AIA injected RMB2bn (US\$277m) into China Post Life (CPL), enhancing its core solvency ratio from 94% to 112%. The impact on AIA’s overall solvency is minimal, representing just 4% of 2025 OPAT and 2% of free surplus estimates. CPL targets the mass market, complementing AIA China’s focus on middle-class and affluent customers.

AIA Hong Kong: Demand Surge Preceding Regulatory Changes

AIA Hong Kong is expected to achieve a robust 29% YoY VONB growth in 1H25, driven by a surge in fire sales ahead of the implementation of the illustration rate cap for participating products.

Regulatory Adaptation: Navigating HKIA Updates

The Hong Kong Insurance Authority (HKIA) rolled out two significant regulatory changes in mid-2025:

• GL34 Guideline: Establishes minimum standards for participating products, effective 1 July 2025. AIA’s fulfillment ratios (90–110%) and its asset management practices ensure strong compliance and readiness.
• Commission Structure Adjustment: Caps upfront commission to 70%, with the remaining 30% spread over five years. AIA’s agency structure is already broadly aligned; the broker channel (23% of 2024 APE) is under review for full impact.

Overall, these regulatory changes are expected to have minimal effect on AIA’s new business growth given its prudent approach.

Financial Performance and Outlook

Key Financials (US\$m)

2025-27 Earnings Revision

VONB estimates for 2025–2027 have been revised down by 3.7%, 4.3%, and 3.8% respectively, reflecting economic assumption changes in China.

1H25 Forecasts (US\$m)

• OPAT: 3,560 (+5% YoY)
• Embedded Value: 69,979 (+3% YoY)
• Annualized New Premium (ANP): 4,718 (+13% YoY)
• VONB Margin: 60.2% (up 1.5ppt YoY)
• VONB: 2,838 (+16% YoY)

Capital Management and Shareholder Returns

• Buybacks: US\$1.6bn share buyback program concluded in July 2025; no additional buybacks expected in the near term.
• Dividend: Interim DPS to rise 8.1% YoY to HK\$0.48. 2025 yield at 5% (pre-moderation); expected to normalize to 3% in 2026, reflecting a 75% payout ratio from net free surplus generation.
• Excess Capital: AIA retains capacity to return up to US\$4bn in excess capital while keeping the shareholder capital ratio above 200%.

Valuation and Market Positioning

• Current Valuation: Trading at 1.4x 2025F PE and 14.6x 2025F P/OPAT—both one standard deviation below historical averages.
• Performance: Share price re-rated 57% from April lows, outperforming the benchmark index (+29%).
• Target Price: HK\$91.00, implying 1.6x 2025F PE in line with historical levels.

Operating and Financial Ratios (2024–2026F)

Conclusion: AIA Group Well-Positioned for Growth and Resilience

AIA Group’s first-half 2025 outlook demonstrates solid VONB and earnings growth, underpinned by strategic product and geographical expansion, regulatory adaptability, and prudent capital management. While yield compression in 2026 is expected, AIA’s robust fundamentals, disciplined approach, and strong capital position affirm its status as a top pick among regional insurers. Maintain BUY with a target price of HK\$91.00.

Disclosures

This article is based on research produced by UOB Kay Hian, with all analysis as of 7 August 2025.