The pan-Asian insurer disclosed 1H24 results with robust VNB growth of +25% YoY (CER basis) to US$2,455mn, beating our estimate and Bloomberg consensus by 1.4%/1.4%, driven by a sequential rebound of VNB margin by +4.5pct YoY (CER basis, CMBI est.) in 2Q24, on top of a 2.1pct YoY (CER basis) increase in 1Q24. We see continued margin recovery in HK and mainland China by +8.8pct/ +6.4pct YoY (CER basis) to 65.7%/ 56.6% in 1H24 (vs 1Q24: 64.3%/54.6%), leading to a solid VNB increase by +26%/+36% YoY (CER basis), making up 67% of total VNB. Group OPAT and OPAT per share was +7%/+10% YoY (CER basis) in 1H24, contributing to an improved operating ROE at 15.3% (+1.4pct YoY). We regard this output as a derivative of the Group’s capital mgt. program launched in April 2024, which poised for an improved ROE through new business accretion and in-force mgt. to drive growth in free surplus, and back for enhanced shareholders’ returns. The company guided a three-year OPAT per share CAGR at 9-11% in FY23-26E, signalling a mid-term earnings growth prospect to support underlying free surplus generation (UFSG), and successive S/H returns amounted to US$7.13bn (CMBI est) in FY24. Looking ahead, we expect 1) product mix will continue to drive VNB margin increase since the proportion of par products in AIA China is still enjoying room for improvement (1H24: 10% of AIA China VNB); and 2) Group’s strong capital position will buttress S/H returns given an est. US$2.9bn total payout target (75% of NFSG) in FY24e. Reiterate BUY, with TP at HK$94.0, implying 1.85x FY24E P/EV.
AIA HK and China saw margin recovery. VNB margin decline in AIA HK and
AIA China was a key concern lingering in market after 1H23 earnings release. We see sequential margin rebounds in AIA HK and AIA China to 65.7%/56.6% in 1H24, +8.8pct/+6.4pct YoY (CER basis), on top of levels at 64.3/54.6% in 1Q24, underpinning robust VNB growth of these two markets by +26%/+36% YoY (CER basis). For AIA China, margin expansion was driven by both product and channel mix. Agency VNB grew 20% YoY, making up 84% of total VNB backed by >60% margin, thanks to a mix of traditional protections, private pension and retirement, other long-term savings and participating products at 45%/25%/17%/10%. Bancassurance VNB margin was >40% given a selective strategy on HNW clients. AIA HK saw resilient MCV and domestic VNB growth by +24%/28% YoY in 1H24. Looking ahead, we expect to see higher proportion of VNB from par products in China, as recent pricing interest rate cut for traditional protections to 3.0% will likely give rise to a shift from traditional life to participating, in our view.
OPAT per share CAGR target at 9%-11% in mid-term. In 1H24, Group’s OPAT per share was +10% YoY (CER basis) to US$30.18, driven by +10% YoY in CSM release to US$ 2.8bn and more efficient operating variances by +58% YoY to US$71mn. Operating ROE rose to 15.3%, up from 13.5% in FY23, thanks to solid new business growth. The insurer guided a 9%-11% CAGR for OPAT per share in FY23-26E, which implied a sustainable mid-term growth prospect on dividends, in our view, as the payout is based on operating profit. The interim dividend was US$0.445 per share, +5.2% YoY, with a full-year payout to 38.5% (CMBI est).
Expect US$7.13bn shareholder returns in FY24. The Group’s net free surplus generation was US$2.2bn, +9% YoY (CER basis) in 1H24. Successive new business layers continue to grow UFSG and pave way for total S/H returns. We expect the pro-forma FY24 S/H returns to reach US$7.13bn, incl. 1) US$1.71bn FY23 final dividends; 2) US$1.67bn 1H24 share buybacks; 3) US$0.64bn interim dividends and 4) remaining US$3.12bn of total US$12bn buyback program due in April 2025, equivalent to 8.5% of market cap. We look positive on AIA’s strong capital position to boost long-term shareholder returns in addition to fundamental.
Valuation: The stock is trading at 1.07x FY24E P/EV, below 1-std of 5-year avg. We remain positive on the Group’s organic growth and sustained focus on S/H returns backed by strong capital position. We revised our price target to HK$94.0 (last: HK$96.5) based on appraisal value approach, implying 1.85x FY24 P/EV. Changes mainly reflect exp. movements in bond yields and forex. Reiterate BUY.