20160715-大和证券-友邦保险-01299.HK-Initiation__Upside_resides_in_Hong_Kong_China_60页_3mb_3mb

AIA Group (1299 HK) Summary

Core Content

AIA Group is a leading Pan-Asia life insurance company operating in 18 markets, including Hong Kong, China, Thailand, Singapore, Malaysia, and Korea. The report outlines an Outperform rating with a target price of HKD55.00, indicating a potential upside of +14.5% from the current share price of HKD48.05. The focus is on the growth potential of AIA's operations in Hong Kong and China, which are expected to significantly contribute to the company's Value of New Business (VNB) and valuation upside.

Main Points

• Growth Drivers:

  • Strong VNB growth in Hong Kong and China, with China's VNB expected to more than double from FY15 to FY18 on a constant exchange rate (CER) basis.
  • High growth in annualised new premiums (ANP) in these regions, contributing approximately 66% of the Group's VNB by FY18, up from 49% in FY15.
  • Product mix changes, including increased premiums from critical illness products in China and Hong Kong, and unit-linked products with protection riders in Malaysia, Thailand, and Singapore.
  • VNB margin expansion in Thailand, China, Singapore, and Malaysia.

• Dividend Upside:

  • Supported by growing underwriting profit, improving expense ratios, current leverage of 1.1x, and predictable distributable profits from in-force business.
  • Forecasted average dividend yield for FY16-18 to be more than double that of FY13-15, rising from 1.2% to 2.7%.

• Valuation:

  • AIA's target price of HKD55.00 is based on a blended 2017E P/EV of 2.0x.
  • The China operations are assigned the highest valuation multiple due to strong growth momentum and positive margin trends.

• Catalysts:

  • Company Level: Quarterly VNB announcements (CER), performance during the "New Year Sales" period in China, and results announcements.
  • Sector / Macro Level: Premium growth trends in China and Thailand, Fed rate decisions, and regulatory changes in China that could impact insurance purchases and capital controls.

• Risks:

  • Intensifying competition from improving agency forces in China and bank-led insurers in Thailand and Malaysia.
  • Currency and equity market volatility across Asia, which could impact AIA's embedded value (EV) and overall performance.

Key Information

• Share Price Performance:

  • 12-month range: HKD37.25 - HKD51.45.
  • Market cap: US$74.64 billion.
  • Average daily turnover: US$117.91 million.
  • Shares outstanding: 12,048 million.
  • Major shareholder: Citigroup Inc. (9.0%).

• Financial Summary (USDm):

  • Net premiums are forecasted to grow from US$21,732 in FY16 to US$26,938 in FY18.
  • Net investment income is expected to increase from US$6,023 in FY16 to US$6,371 in FY18.
  • Net profit is projected to rise from US$3,339 in FY16 to US$4,426 in FY18.
  • Core EPS (fully-diluted) is forecasted to increase from US$0.277 in FY16 to US$0.367 in FY18.
  • Dividend yield is expected to rise from 2.2% in FY16 to 3.0% in FY18.
  • PBR (Price to Book Ratio) is projected to decrease from 2.1 in FY16 to 1.6 in FY18.
  • ROE (Return on Equity) is forecasted to remain stable at 10.4% to 10.0%.

• Growth Outlook:

  • VNB growth is expected to be 27% YoY in FY16, 21% in FY17, and 18% in FY18.
  • Geographic mix and product mix changes are key drivers, with China and Hong Kong showing c.25-30% CAGR in VNB over FY16-18.

• Financial Position:

  • AIA maintains a well-capitalised position, with net profit margins expected to remain stable between 15.4% to 16.4%.
  • Solvency ratio is projected to increase from 428% in FY15 to 439% in FY18.
  • Leverage is currently at 1.1x, with a potential for further improvement.

• Key Ratios:

  • ROAE (Return on Adjusted Average Equity) is expected to increase from 7.8% in 2011 to 11.0% in FY17.
  • Net debt to equity is stable at 4.1%.
  • Effective tax rate is projected to decrease from 25.8% in 2011 to 16.3% in FY17.
  • Dividend payout ratio is expected to remain at 50.0% from FY16 to FY18.

Conclusion

AIA Group is positioned for growth in developing Asia, particularly in China and Hong Kong, where it expects to see strong VNB growth and margin expansion. The company's strategy of combining developed and developing markets offers a balance of stability and growth. The report highlights that AIA's financial position is well-capitalised, and its dividend yield is expected to improve significantly. The target price of HKD55.00 reflects a blended P/EV of 2.0x for FY17, indicating strong valuation upside. Investors should monitor premium growth trends, regulatory changes, and currency/equity market volatility as key factors affecting AIA's performance.