1H22F preview: ASEAN rebound is key
- We forecast 1H22F VONB to fall 17% yoy (1Q22: -18.9%; 2Q22F: -14%), with 1H22F currency headwinds yoy of 2%-pt (1Q22: 1%-pt; 2Q22F: 4%-pts).
- We expect HK, Singapore and Malaysia to be the three strongest regions with mainland China the weakest.
- Of interest to investors may be how quickly growth in ASEAN VONB is recovering, as it learns to “live with the virus”.
- Reiterate Add rating. No change to TP of HK$96.
1H22F VONB of -17% yoy, driven by mainland China weakness
Our 1H22F forecast of AIA’s value of new business (VONB) falling 17% yoy factors in 2%-pts of currency headwinds, with this largely concentrated in 2Q22F at 4%-pts yoy (1Q22: 1%-pt yoy). 1H22F consensus provided by the company is -15% yoy, with a range of -11% to -17% yoy. We show our quarterly VONB forecasts by region in Fig 1 and explain our underlying reasoning for our conservative assumptions in 2Q22F in Fig 2.
Hong Kong strongest market due to margin improvements
We have written extensively about AIA’s HK VONB margin improvements in past reports (e.g. Margin tailwinds, currency headwinds, dated 5 Jul 2022 and Decoding HK: Margin driven growth, dated 11 Apr 2022), which we believe will see AIA’s HK VONB outperform its HK-listed peers in 1H22F. We estimate that AIA HK’s VONB margins rose at least 30% yoy in 1Q22F and we expect this to continue in 2Q22F, primarily driven by improved product mix and higher interest rates.
We expect Singapore to be the second strongest region in 2Q22F
We believe that AIA’s Singapore VONB is recovering well in 2Q22F after a relatively weak 1Q22, driven by a fall in Covid-19 cases as well as its consumers adapting well to “living with the virus”. This recovery could be system-wide in our view, as we expect peers to also show a strong recovery.
Malaysia is another region that we expect to do well in 2Q22F
As we also expect Malaysia to perform well for AIA in 2Q22F amidst falling Covid-19 cases, we believe a key area of investor focus will be the extent to which VONB can recover in 2Q22F yoy versus 1Q22 yoy, as countries learn to ‘live with the virus’.
Mainland China worst region, but could we be overly conservative?
We believe we have been very conservative in our 2Q22F VONB assumption of -40% yoy, driven by Shanghai (-80% yoy) (Fig 2), given solid agent number trends.
Remains top sector pick; Reiterate Add rating with TP of HK$96
Our P/EV GGM-based TP remains unchanged at HK$96. Potential re-rating catalysts: higher bond yields, borders reopening and further approval to expand in mainland China (see Five down, nine to go, dated 30 May 2022). Downside risks include currency volatility, weak equity markets and prolonged Covid-19 outbreaks.
