Ending an 11-year wait
? An 11-year wait has ended, with a share buyback of up to US$10bn, the first
since its 2010 IPO. FY21 free surplus was US$25bn after adoption of RBC.
? VONB was impressive, with FY21 up 22% yoy and 4Q21 up 26% yoy, driven
primarily by HK and, to a lesser extent, Thailand.
? 1H22F remains a key challenge, due to a high base in China in 1Q22F and
given Omicron-related uncertainty in HK in 1H22F.
? Reiterate Add rating. AIA remains our top pick in the sector. Our lower TP of
HK$101 is due to lower FY22F-24F VONB estimates.
Capital management a surprise; VONB, EV and net profit beat
The key standout of the FY21 results was the US$10bn share buyback programme and
22% growth yoy in value of new business (VONB; 4% above consensus and 3% above
our estimate). FY21 net profit also beat our forecast by 27%, driven by realised gains on
bonds. FY21 embedded value (EV) beat our forecast by 6% (Fig 1).
What we liked about the FY21 results
i) 4Q21 VONB was up 26% yoy (or 28% yoy on a constant exchange rate [CER] basis), a
marked improvement from 3Q21’s 4% yoy (2% yoy on a CER basis; Fig 3), driven by HK
and Thailand, across both agency and bancassurance; ii) a share buyback programme of
up to US$10bn over three years. This is significant as A IA has historically been unwilling
to return its sizeable excess capital to shareholders since its 2010 IPO. Its FY21 Group
Local Capital Summation Method (LCSM) ratio w as 399%, w ith free surplus of US$25bn
after adoption of HK’s new risk-based capital (RBC) regime (US$17bn before adoption).
FY21 underlying free surplus generation w as US$6.5bn, up 8% yoy; iii) 74% VONB
growth yoy on a like-for-like basis in FY21 for Tianjin, Shijiazhuang and Sichuan; iv)
China active agent numbers returned to grow th hoh in 2H21 (Fig 9); v) Macau continues
to record strong growth in mainland Chinese visitors (MCV) buying insurance, with
annualised new premiums for this segment more than doubling in FY21, which is
consistent with our bullish view of this segment (A welcome diversion, dated 6 Jan 2022).
What we did not like about the FY21 results
i) A marked slow dow n of VONB grow th in most regions apart from HK in 2H21 yoy
compared to 1H21 yoy (Fig 2); ii) the notable fall in mix of traditional protection products
(Fig 5); iii) the fall in China VONB margins to an 8-year low (Fig 8).
Reiterate Add with lower TP of HK$101; remains top sector pick
Our GGM-based TP dips to HK$101 from HK$107, driven by slow er FY22F V ONB
grow th due to HK’s Covid-19 outbreak. Our 5.4-10.2% low er EPS over FY22F-24F is due
to reduced premium grow th and investment income assumptions. Potential catalysts are
higher bond yields and a marked fall in Covid-19 cases, w hich could lead investors to
expect a reopening of the HK-mainland borders. Dow nside risks include currency
volatility and a prolonged Covid-19 outbreak.