AIA’s share price underperformed the market and CN insurers despite resilient VNB growth and a solid financial position underpinning attractive shareholder returns. The stock price fell 17.3% in FY24, lagging behind key benchmarks as HSI (+18%), CSI 300 (+15%) and FTSE APAC ex-Japan (+7%) (Fig.1). We attribute the market’s under-appreciation of this regional top-player to 1) sustainable VNB growth in long run, and 2) whether such VNB momentum across segments could translate into a resilient uptrend in earnings, cash and shareholder return, incl. both dividends and buybacks. We expect AIA’s full-year VNB to rise 20% on a CER* basis (or up 18% AER*). Group OPAT and EV could grow 7%/6% YoY in FY24, back to a healthy growth trajectory. Total shareholder return could rise to ~8% in FY24, with 3% on dividend and ~5% return on buybacks. On Feb 12, AIA finished the US$12bn buyback program (initiated US$10bn in Mar 2022 and added US$2bn in Apr 2024), and investors expect a new buyback to be announced in mid-Mar 2025, possibly during the FY24 earnings release. We see potential fund inflows could be catalysed on sufficient shareholder returns. Maintain BUY, with TP unchanged at HK$94.0 based on appraisal value approach, implying 1.6x FY25E P/EV.
　　Full-year VNB up 20% despite a 2H slowdown by quarters. We expect VNB of US$4.77bn in FY24, up 20% on a CER basis (or up 18% AER), with 2H growth at 16% (CER), down from a 25% (CER) increase in 1H24. 4Q VNB could rise 14% YoY (CER), slightly down from 16% growth in 3Q24. We expect to see double-digit VNB growth in HK, mainland China and Other markets in 2H24, whereas the ASEAN markets, i.e., Thailand and Singapore, in face of a high base and weakening demands given the repricing of medical insurance product, could end up with single-digit growth in 2H24. AIA HK and AIA China should continue to be two key drivers of total VNB, which we expect to see a rise of 24%/24% (CER) in FY24, or 21%/19% (CER) in 2H24. For Other markets, TATA AIA Life (a JV in India) and Vietnam could return to positive growth, and we estimate the segment’s VNB up 11%/21% (CER) in FY24/2H24.
　　IFRS OPAT up 7% in FY24 underpins DPS to grow 11% YoY. Group OPAT would return to an uptrend by rising 7% YoY (CER) in FY24, supported by a better insurance service result and improved investment. With accumulated profitable new business, we expect CSM release, the core contributor of OPAT, to grow 7.2% YoY in FY24, driving insurance revenue up 10% YoY. 2H24 equity returns outperformed 1H across major markets, with CN/SGN/HK/TH stock indices rising 14%/14%/13%/8% in 2H24 (vs 1H: +1%/3%/4%/-9%, Fig.1). Bond yields were mixed yet showed double-digit declines in 2H for most operating markets (Fig.2). OPAT per share would be up 10% YoY, thanks to the share buybacks. FY24 DPS would rise 11% YoY to US$0.23, implying a 38.5% payout (+0.2pct).
　　Shareholder return remains a key focus of mgmt. actions. AIA finished the US$12bn share buyback program on Feb 12, with a total of 1,409mn shares repurchased. We see the early finish of buyback (US$2bn announced in Apr 2024 was set to finish in Apr 2025) augur well for the insurer’s priority on shareholder returns, and arouse market expectation for a new program in mid-Mar. We expect >US$3.5bn was used for buybacks in FY24, translating to ~5% S/H returns. Including dividends, we estimate total shareholder return will reach ~8% in FY24. Underlying free surplus generation (UFSG) of US$6.7bn, up 11% YoY, could enhance the Group’s capital position for incremental S/H paybacks. We factor in another US$2bn buyback to be completed within one year in our model.
　　Valuation. The stock is trading at 1.0x FY25E P/EV, near the historical trough (vs 3yr/5yr avg. at 1.3x/1.5x, Fig.4), with FY24-26E operating ROE at above 16%. The stock trading was beta-driven, and yet we think investors could be more convinced if long-term value growth were to sustain, and translate into solid capital and financial metrics to make room for further buybacks. Maintain BUY, with TP at HK$94.0, implying 1.6x FY25E P/EV and 9.0x NBM*.
　　Key risks: 1) geopolitical and macroeconomic volatilities; 2) weaker-than- expected new business momentum; 3) lower-than-anticipated margin expansion; 4) lagged provincial branch approvals by CN regulators; 5) significant FX movements, etc.
　　The company will report FY24 annual results on Friday, Mar 14, pre-open, and the earnings call will be held at 9:00am (HKT) on the day through webcast