Overview of AIA Group and Analyst Recommendation

AIA Group Limited, a global leader in life insurance, continues to showcase its resilience and growth potential in the financial sector. UOB Kay Hian maintains a BUY recommendation for AIA Group with a revised target price of HK\$93.00, reflecting a robust upside of +70.4% from its current share price of HK\$54.55. Despite slight adjustments in valuation, the company remains a solid investment opportunity, driven by its strategic geographical expansion, product innovation, and strong operational metrics.

This article deep dives into AIA’s financial performance, market dynamics, geographical strategies, and the challenges and opportunities ahead.

4Q24 Preview: Anticipating Strong Growth

AIA Group is expected to deliver a remarkable 23% year-on-year (yoy) growth in its value of new business (VONB) for 4Q24. This performance is underpinned by:

• Reaccelerated growth in China due to a lower base and strong pre-sales momentum for 2025 products.
• Solid sales in Hong Kong and Singapore, driven by robust demand from affluent customers and new immigrants.

However, the company faces softer demand in Malaysia and Thailand due to medical product repricing.

AIA China: Geographical Expansion and Product Strategy

Strong VONB Growth

AIA China’s VONB growth is set to accelerate significantly in 4Q24, thanks to:

• Increased agent productivity and a higher mix of participating products.
• The easing of challenges from early product withdrawals and industry-wide repricing in 3Q24.

Geographical Expansion

AIA China’s expansion strategy is progressing smoothly, with four new licenses acquired from local bureaus in 4Q24. The preparation period for regulatory approval is expected to take six months. Key highlights include:

• Building an agency force of 300 per new branch, with a target of 1,000 agents within two years.
• Plans to expand into 4-5 additional provinces in China.

The new branches are expected to achieve significant contributions to VONB faster than their predecessors, as they will operate without pandemic-related disruptions.

Hong Kong and Singapore: Sustaining Strong Performance

Hong Kong

AIA Hong Kong is poised for sustained growth, with the domestic segment outpacing the Mainland China Visitor (MCV) segment. Key drivers include:

• Strong demand from new immigrants fueling onshore business growth.
• Moderation in the MCV segment due to sluggish broker channel performance, partially offset by robust agency channel sales.

Singapore

AIA Singapore launched a unit-linked long-term savings product powered by the AIA Regional Funds Platform, catering to affluent customers. This innovation positions AIA Singapore to sustain solid VONB growth.

Malaysia and Thailand: Facing Headwinds

Both markets are experiencing challenges due to repriced medical products, impacting VONB growth. However, AIA Malaysia shows promising signs with:

• Strong momentum in its bancassurance channel.
• A focus on protection sales driving high single-digit VONB growth in 4Q24.

Management acknowledges ongoing issues with medical claims variances, driven by rising medical cost inflation and claim frequencies. To address these challenges, AIA has introduced affordable medical products to maintain persistency ratios.

Resilience Amid Declining Bond Yields

AIA China demonstrates resilience in the face of declining China Government Bond (CGB) yields. Key factors include:

• A smaller asset-liability duration gap due to long-dated CGB investments.
• A lower proportion of high-cost policies in its back book.

Management estimates a 7% decline in embedded value (EV) for every 50bp drop in CGB yield, compared to at least 9% for domestic peers.

Embedded Value and Shareholder Returns

AIA’s embedded value (EV) is projected to grow 1.1% half-on-half (hoh) to US\$69 billion in 2H24. Key contributors include:

• Strong equity performance in mainland China and Thailand offsetting adverse treasury yield movements.
• US\$2.3 billion dividend payout and US\$4.1 billion share buyback in 2H24.

Operating profit after tax (OPAT) per share is expected to rise 10.8% yoy, aligning with the company’s three-year CAGR target of 9-11% from 2023-2026.

Earnings Revisions and Valuation

UOB Kay Hian revised its forecasts to reflect market conditions:

• 2024-2026 VONB forecasts: Reduced by 0.7%-1.5% due to slower growth in Malaysia and Thailand.
• 2024-2026 OPAT estimates: Lowered by 0.8%-2.5% due to rate movements and medical claim pressures.

The target price was adjusted to HK\$93.00, implying a 1.6x 2025F P/EV, in line with its historical mean. AIA currently trades at a discounted 1.0x 2025F P/EV, offering a potential 5.5% shareholder return yield for 2025.

Conclusion

AIA Group continues to demonstrate its strength and adaptability in a challenging market environment. With robust geographical expansion, innovative products, and strategic asset management, AIA remains a compelling investment opportunity. The company’s ability to sustain strong VONB growth, coupled with its enhanced capital management policies, ensures a positive outlook for shareholders.