20160728-大和证券-友邦保险-01299.HK-AIA_Group__Sustainability_of_Hong_Kong_growth_key_factor_for_2H16_24页_644kb

AIA Group 1H16 Performance Summary

Core Content and Key Highlights

AIA Group reported a 37% YoY (CER) increase in New Business Value (VNB) for the first half of 2016 (1H16), primarily driven by strong offshore policy sales in Hong Kong and improving expense ratio. The company's Operating Profit After Tax (OPAT) also grew, reflecting efficient operations and strong performance in key markets.

Main Points of Analysis

• Hong Kong (39% of VNB):

  • Recorded an 83% YoY annualised ANP surge, mainly due to offshore policy sales and improved agent productivity.
  • The margin decline was attributed to more participating products being sold.
  • Estimated VNB margin for domestic HK business was ~60%, while ~45% for offshore HK.
  • Hong Kong and China together accounted for 59% of AIA's VNB in 1H16, up from 49% in 1H15.

• China (20% of VNB):

  • Active agents increased by over 40%.
  • A new critical illness rider launched in early 2016 drove upgrade demand and improved both VNB amount and margin.
  • Derived 72% of operating profit from insurance fees in 1H16.

• Thailand (13% of VNB):

  • Facing labour transition due to adverse macroeconomic conditions and premium mix change.
  • ANP and VNB growth were weaker compared to other regions.

• India:

  • Expected to overtake Korea as AIA's 6th-largest market in terms of proportional VNB contribution.
  • Low penetration rate but execution is seen as key to monetise the market.

• OPAT, Solvency, and Dividend:

  • AIA's expense ratio declined 0.2pp YoY to 8.0%, tracking forecasts.
  • OPAT grew 9% YoY (AER) and is expected to be supported by continued expense ratio improvements.
  • Dividend yield rose to 2.9% in 1H16, with an interim dividend increase of 17% YoY.
  • Solvency ratio for AIA HK was 381%, down from 428% in 1H15.
  • Dividend payout ratio is projected to remain at 50% for 2016–2018.

Key Financial Metrics (1H16)

Forecast Revisions (16E, 17E, 18E)

Growth Trends and Margins

ANP Growth (YoY %)

VNB Growth (YoY %)

Net Investment Yield

Embedded Value Growth (YoY %)

Key Risks and Outlook

• Regulatory risk: Tightening regulations on Hong Kong's offshore policy sales may persist, but AIA is not expected to face major headwinds in the near term due to China's resilient foreign reserve trend.
• Market slowdown: ASEAN markets are expected to see slower growth, with greater-than-expected moderation in ANP and VNB growth as a key risk.
• Performance drivers: HK and China are projected to drive VNB, embedded value, and share price growth.
• Dividend expectations: AIA's interim dividend increased 17% YoY, with expectation of a larger final dividend.

Company Profile

• AIA Group is the largest listed Pan-Asia life insurance group, operating in 18 markets including Hong Kong, Thailand, Singapore, Malaysia, China, and Korea.
• Offers a range of products: life insurance, accident and health insurance, and savings plans.

Investment Portfolio Overview

• Total investment assets at the end of 1H16: $135,093m, up 5% YoY.
• Investment mix:
  • Fixed income: 85% of total investment assets.
  • Equity: 10%.
  • Cash & cash equivalent: 1%.
  • Derivatives: 0%.
  • Investment property: 4%.
• Fixed income yield for 1H16: 5.0%, down slightly from 5.1% in 1H15.
• Actual investment return for 1H16: 4.9%, down from 6.9% in 1H15.

Regional Operations Summary

Key Ratios and Performance

Conclusion

AIA Group's 1H16 results reflect strong performance in Hong Kong and China, with improved expense ratio and increased VNB and OPAT. The company's dividend yield and capital structure are stable, and the solvency ratio remains robust. However, slower growth in ASEAN markets and regulatory risks in Hong Kong could impact future performance. AIA is expected to continue driving growth from its HK and China operations, with execution being crucial in India for long-term value creation.