Reopening: Macau greater near-term impact
- Macau’s further re-opening to mainland China’s coastal regions has more of a near-term impact than HK’s reopening to the rest of the world, in our view.
- This stems from more mainland Chinese visitors (MCV) buying insurance in Macau. This segment rose yoy by 25% in 1H22 (1Q22: 104%) [Fig 3].
- MCV insurance demand had traditionally been strongly correlated to Rmb weakness (Fig 1). We see this continuing, thus spurring MCV sales growth.
- We believe half of MCV pre-2020 came from China’s coastal regions, with 15% coming from Guangdong. Add rating andTP of HK$96 unchanged.
Reopening: Greater near-term benefit from Macau’s re-opening
? While both Hong Kong (HK) and Macau announced their re-opening initiatives on 23 Sep and 24 Sep, respectively, we see Macau’s move as having a more positive impact on AIA in the near-term. This is despite 1H22 value of new business (VONB) contribution from Macau of only about 3% versus about 17% for HK.
Macau re-opening: Tapping a market equal to 50% of pre-2020 MCV
? Macau’s chief executive had announced that it could hopefully receive mainland China tour groups in Nov 2022 from Guangdong, Fujian, Zhejiang, Jiangsu and Shanghai, with an initial daily target of about 40,000 visitors, about half its pre-pandemic capacity.
? These coastal regions made up almost half of the mainland Chinese visitors (MCV) buying insurance in Hong Kong pre-2020, in our view, with Guangdong comprising about 15% of MCV.
? Macau’s reopening initiatives could thus significantly spur its MCV insurance sales growth in FY23F. Its MCV sales rose 104% yoy in 1Q22, before slowing to 25% yoy in 1H22 due to Covid-19 outbreaks (Fig 3). MCV comprised 25% of Macau’s system annualised new premiums (ANP) in 1H22 (1Q22: 64%; 2Q22: 29%) [Fig 4].
HK: The mainland border is key; uncertain timeline persists
? HK’s recent re-opening initiatives have largely focused on opening its international borders (excluding mainland China). We do not expect this to have any notable impact on domestic insurance sales in HK.
? An uncertain timeline for the reopening of the border between mainland China and HK still persists, in our view. We also note Shenzhen had recently reduced the daily quota for returning mainland Chinese residents at the Shenzhen -HK border (Fig 5).
Rmb currency weakness could also spur MCV insurance sales
? MCV insurance demand has traditionally been strongly correlated to Rmb weakness vs. the US$ (Fig 1). We see this correlation continuing, thus helping insurance sales.
Reiterate Add rating; remains top sector pick
? Our GGM-based TP of HK$96 is unchanged. AIA currently trades at 2.7 s.d. below its post-2017 mean (Fig 7). Potential re-rating catalysts: mainland China-HK border reopening and further approval to expand in mainland China. Downside risks include currency volatility, weak equity markets, and prolonged Covid-19 outbreaks.