AIA reported decent 1Q25 growth with VONB up by 13% YoY (CER) on top of a high prior-year base (1Q24: +31%), driven by both margin expansion (+3pct) and ANP increase (+7%). VONB margin jumped to 57.5%, a quarter high since FY22, thanks to progressive shift in product mix to participating-type long-term savings offset by the change of economic assumptions by end-FY24. The rise of new business CSM (+16%) outgrew VONB for the first time (+13%), boding well for a profitable stock of future earnings to propel for Group OPAT growth. Agency VONB edged up 21% YoY to US$1.22bn (75% mix), of which we think AIA TH and HK could be the main drivers. Partnership VONB grew 2% YoY to US$0.4bn, dragged by the decline in HK’s IFA and China’s bancassurance amid intense competition and regulatory tightening. By markets, AIA HK/TH/Other markets achieved robust VONB growth in 1Q, whereas CN was affected by the EV assumption change at end-FY24 against a high base, and Malaysia was tugged by the slowdown in agency recruitment. The US$1.6bn buyback commenced on Apr.14 is expected to complete over three months, faster than previously planned within the year, showcasing AIA’s emphasis on S/H return. We estimate total shareholder return to be 6.2% in FY25E, with dividend/buyback yields at 3.3%/2.9% and 11% OPAT per share CAGR in FY23-26E. Maintain BUY, with TP (unchanged) at HK$89.0 based on appraisal value, implying 1.6x FY25 P/EV.
VONB grew amid diversifications. Group VONB jumped 13% YoY (CER) to US$1.5bn in 1Q25, thanks to margin expansion by 3pct to 57.5% and a 7% rise in ANP. Agency VONB rose in sales momentum of traditional and participating products to US$1.22bn (75% mix), up 21% YoY. Partnership VONB growth retreated to 2% (vs 1Q24: +70%), affected by falling China bancassurance and HK IFA VONB amid intensified competition. If excluding China, bancassurance VONB elevated 21% YoY in 1Q25. For CN, VONB grew 8% like-for-like prior to the assumption adjustments, a beat to our expectation, as we concerned on margin pressure and a high base (1Q24: +38%). CN VONB slid 7% YoY on an actual basis. HK VONB lifted 16% YoY with domestic and MCV segments rising on balance. Thailand VONB accelerated in 1Q25 as clients rushed to purchase individual medical insurance ahead of the co-payment initiative that took effect from Mar 20. Malaysia VONB grew in bancassurance offset by a slowdown in agency. We expect VONB to rise in mid-teens in FY25E with a steady margin.
Share buybacks to complete earlier than expected. The US$1.6bn buyback commenced on Apr 14, 2025 announced to finish by FY25 in meeting of annual results. In Apr, the insurer updated to complete the program over three months, meaning the total will be used up by July. We reckon that US$281mn has been used YTD, with average daily buyback amount at US$28.2mn (8.7% of 30-day ADT) implying a repurchase acceleration could potentially take effect from now on. Investors eye on additional buybacks, if any, to be announced in 1H25, yet we think this may not follow suit, as the insurer focuses on the net FSG for capital mgmt. which already factored in the US$1.6bn buybacks. Additional capital returns would consume the free surplus, and drag shareholder capital ratio (SCR) to slide more from the pro-forma 223% by end-FY24.
Valuation: The stock is trading at 1.05x FY25E P/EV and 1.65x FY25E P/B, with 15% forward 3yr operating ROE (CMBI est). We remain positive on AIA’s profitable new business growth translating into Group OPAT. Maintain BUY, with TP (unchanged) at HK$89 on appraisal value, implying 1.6x FY25E P/EV.
Key risks: 1) prolonged interest rate down-cycle across operating markets; 2) heightened FX movements and equity market volatilities; and 3) worse-off operating variances, etc.