AIA reported solid VONB growth at 18% YoY (CER, or 17% AER) to US$4.71bn in FY24, slightly lower than our estimate of 20% (CER)/18% (AER) YoY (link). VONB margin was 54.5% (ANP basis), +1.9pct YoY, vs. our forecast at 54.7%. Group OPAT grew 7% YoY (CER) to US$6.6bn, bolstered by 2H OPAT +9.5% YoY (vs. 1H24: +3.5%). OPAT per share was up 12% to US$0.60 in FY24, thanks to a combined effect of US$2.5bn share buyback (avg. no. of shares: -4%) in 2H24. Underlying free surplus generation (UFSG) amounted to US$6.33bn, +6% YoY, enhancing the net FSG, the core metric for shareholder returns, which was up by 3% YoY to US$4.02bn in FY24. Within the year, total shareholders’ return was US$6.5bn, incl. US$2.3bn of dividends and US$4.2bn of share buybacks. Amid earnings, AIA also announced a new buyback program of US$1.6bn in 2025, with US$0.6bn from 75% net FSG, and additional US$1.0bn following a review on the Group’s capital position, lower than our estimate of US$2.0bn to finish in one year. For 2025, total shareholders’ return (TSR) could reach 6%, incl. US$2.4bn FY24 dividends (3.1%) and US$2.3bn share buybacks (2.8%) over the year-start market cap. We adjust TP to HK$89 (prev. HK$94), based on P/EV vs RoEV and appraisal value approach, implying 1.6x FY25 P/EV. Reiterate BUY.
AIA HK/CN led Group VONB growth. Group VONB was up 18% YoY (CER) to US$4.7bn in FY24, with 2H/4Q growth cooled to +13%/+9% YoY (CER) due to the slowdown of AIA China in 4Q24 (2H: -0.2%/4Q: est. double-digit decline). VONB of AIA HK and AIA China was up 23%/20% YoY (CER) to US$1.8bn/ US$1.2bn, making up 35%/ 24% of total VONB. For AIA HK, MCV and domestic segments rose 22%/24% YoY showing resilient rebounds on top of a high base in FY23. Agency and partnership VONB was up 23%/25% YoY. AIA China revised down the long-term investment return assumption due to prolonged low interest rates in FY24 (CNGB10YR down to 1.68% by end-FY24 vs year-start: 2.57%). The like-for-like VONB growth could be higher than the headline growth of 20%. With an aim to expand to 1-2 provinces annually unchanged, we remain positive on AIA China’s VONB upside for its enhanced economies of scale. AIA ASEAN sustained the strong momentum, where VONB of SG/TH/MY grew 15%/15%/10% YoY (CER). In 2025, we expect Group VONB to rise 14% (CER).
　　OPAT per share achieved 9-11% target; steady capital generation. Group OPAT grew 7% YoY (CER) to US$6.6bn, with OPAT per share up 12% to US$0.6, thanks to continued share buybacks that reduced share count by 4%. Operating ROE was up 1.3pct YoY (AER) to 14.8%, driven by 1) profitable new business layering, where new business CSM (+11%) was 36% higher than CSM release to P/L (+7%); and CSM balance increased 9.1% YoY; 2) robust expected return on the in-force book (+9%); 3) stabilizing net investment results. Shareholder capital ratio was 236%, comfortably above the 200% guidance. In FY25E, we expect the net FSG to be US$4.0bn after incl. 10% increase of total dividends and US$1.6bn buybacks with free surplus balance at US$11.9bn.
　　Valuation. The stock is trading at 1.12x FY25E P/EV, near historical trough (vs 3yr/5yr avg. at 1.3x/1.5x), with FY24-26E operating ROE remaining at ~16%. We are positive on the insurer’s VONB prospects, driven by expansions in mainland China, robust WM demands in HK/SG, and VONB acceleration of TATA AIA Life. Reiterate BUY, with TP adjusted to HK$89.0, implying 1.60x FY25E P/EV.
　　Key risks: 1) significant slowdown in HK/China new sales volumes; 2) slower-than- expected free surplus generation that affects the Group capital generation; and 3) prolonged financial market and geopolitical volatilities across Asia ex-Japan markets etc.
　　Valuation
　　Considering investment fluctuations and VONB divergence across geographic markets, we slightly revised down the OPAT per share by 1.5%/3.3% in FY25E/FY26, and VONB by 4%/6% in FY25E/FY26E.
　　We adopt P/EV vs RoEV based on Gordon Growth Model and Appraisal Value Approach for the valuation of AIA, considering the insurer’s proposition as a mature pan-Asian leader across the Asia ex-Japan geographies. We derive our new 12-month forward price target at HK$89.0 (prev. HK$94), by taking the weighted average of two methods on a pro-rata basis of time. The new TP implies 1.60x FY25E P/EV vs. trading at 1.12x FY25E P/EV. The price target derived from the P/EV vs RoEV approach is HK$54 and from Appraisal value approach is HK$120.
　　For P/EV vs RoEV method, we apply the weighted average risk-free rate at 4.4% (i.e. avg. risk-free rate across operating geographies), a risk premium of 550bps, a beta of 1.5x, and 2% terminal growth rate. For the appraisal value approach, we apply the risk discount rate (RDR) of 9.1%, a long-term investment return of 8.6%, and 2% terminal growth rate.
　　The new TP implies 1.60x FY25E P/EV vs. trading at 1.12x FY25E P/EV, with 43% upside.