Exposed to faster growth channels/regions
- We forecast 2H22F NBP to return to growth yoy (1H22: -7%), driven by our belief of continued solid growth momentum of APE in Jul and Aug 2022.
- We still see bancassurance as the main driver, driven by a marked increase of bancassurance sign-ups in 2022, especially within mainland China.
- We think Singapore and mainland China could be the strongest regions for 2H22F NBP growth, with Indonesia, Malaysia and Hong Kong the weakest.
- Reiterate Add rating. TP cut to HK$119 from HK$144.7 due to cuts in our FY22F–24F EPS, EVPS and NBP.
2H22F: A return to growth for NBP
We forecast 2H22F new business profit (NBP) to return to growth at 6% yoy, from 1H22’s 7% fall, driven by strong growth momentum for annualised premium equivalent (APE), which we think continued in Aug, following a strong start to 3Q22F (Fig 1).
Bancassurance (42% of 1H22 NBP) continues to be the driver
We see Prudential (Pru) as well placed to benefit from continued strong bancassurance growth, with this channel comprising 53% of 1H22 APE and 42% of 1H22 NBP, and bancassurance APE and NBP up by 25% yoy and 31%, respectively, on a constant exchange rate (CER) basis in 1H22. With Pru onboarding 22 new bank partners in 1H22, half of which were from mainland China, we expect mainland China to continue its strong 2Q22 bancassurance APE growth momentum (81% yoy, Fig 2) in 2H22F. Bancassurance NBP also benefits more notably from the higher US rate environment (Fig 3), given actuarial investment assumption changes under Pru’s European Embedded Value (EEV) methodology (Fig 7).
Higher-than-peer exposure to Singapore, the fastest growing region
Singapore grew the fastest of Pru’s major regions in 1H22 NBP, up 13% yoy. We expect Singapore’s fast growth to continue, again driven by bancassurance as Pru targets the high net worth segment. Importantly, Singapore was also Pru’s largest region (22% of its 1H22 NBP, Fig 9), with mainland China its second largest market (20% of 1H22 NBP).
Importance of obtaining a licence to operate in Macau is rising
This is because we expect greater inflow of mainland Chinese visitors (MCV) buying insurance following an imminent resumption of the individual e-visa programme and group tours from Guangdong, Shanghai, Zhejiang, Jiangsu and Fujian (See Reopening: Macau greater near-term impact, dated 26 Sep 2022). Rmb weakness has historically been a powerful motivation for MCV buying insurance offshore (Fig 15).
Reiterate Add rating; SOP-based TP cut to HK$119
Our lower TP is driven by lower FY22F–24F EPS and new business profits (NBP) (Fig 18 and 19). Potential near-term catalysts: Macau licence approval and NBP recovery. Downside risks: Covid-19 outbreaks, a global recession and lower investment yields.