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Making AIA great again

■ AIA has returned to the good old days of great share price track record around results; 10-day results window return averaging 6% under Mr Lee.
■ This is superior to the previous CEO and even higher than Mr Mark Tucker. We also believe consensus 2H21F NBV is too low and expect results beats.
■ Investor queries about AIA vs. Pru comparisons seem to be rising. We still see numerous reasons for AIA’s premium valuation to persist.
■ Reiterate Add, with a higher TP of HK$128. AIA remains top sector pick.

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Return of the good old days of great track record around results

AIA has kept a superior share price track record around its results announcement under its current CEO, Mr Lee Yuan Siong. A trading strategy whereby investors buy five days before its results announcement and sell five days after yielded 6% on average since Mr Lee took over the helm in early-2020 (Fig 1). This is superior to the return under prior
CEOs Mr Ng Keng Hooi, (average 0%) and Mr Mark Tucker (average 5%) (Fig 2). This is important as we believe investors can once again have great confidence leading up to AIA’s 3Q21F results, with currency still a growth tailwind.

Consensus looks too low for 2H21F

2H21F consensus value of new business (VONB) of 19% yoy (or 23.9% yoy for FY21F) is too low in our view, given our 2H21 forecast of 25% yoy, driven by a VONB-margin led growth in China, HK (Fig 12) and Thailand (Fig 18). 1H21 VONB growth was 29% yoy (or 22% on constant exchange rates) (Shaping up to a good 2H21F, 17 Aug 2021).

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Small is beautiful (and nimble)

We see AIA’s small size as helping it more nimbly adapt to a tougher China industry outlook. Its expansion in new regions are also tailwinds helping growth. Note that AIA’s China premium growth recovered earlier than peers when the industry was facing growth headwinds implementation of Document 134 in late 2017 (Fig 5) (Word play: Exploring excellent, 26 May 2021). In fact, another small mid-sized insurer, PICC Life, has already shown encouraging signs of recovering first year premiums (Fig 6). Also, unlike 1H21, 2H21F China growth yoy is not impacted by a tax upon AIA’s China subsidiarisation.

Recent investor queries about AIA vs. Pru comparisons are rising

We believe this could be because of Pru’s demerger and possible upcoming capital raising from Asian-based investors. We had written extensively about comparisons between these two insurers in Uniqueness under threat? 28 Feb 2020 and we currently still believe there are numerous reasons for AIA’s premium valuation to persist.

Reiterate Add rating; GGM-based TP raised slightly to HK$128

We raise our above-consensus FY21F-23F VONB by 1.3%, with a higher TP of HK$128. Potential re-rating catalysts are higher US rates, an Insurance Connect, loosened border controls, further China expansion, and loosening of China’s restrictions on its capital account. Downside risks include currency volatility and a prolonged Covid-19 outbreak.