AIA reported resilient 1H25 results. VONB rose 14% (CER) YoY to US$2.84bn, in line with our estimate of US$2.85bn and translating to 2Q VONB growth at 17% (CER, vs.1Q25: 13%). This uplift was mainly driven by margin expansion, as VONB margin grew 3.9pct YoY to 57.7% in 1H25, a record high since FY23, with a surprise from AIA China’s VONB margin, which was up 2.0pct YoY to 58.6%, the highest post pandemic. We see continued positive trends in product mix as 89% of total VONB was from protection and fee-based insurance products with low or no guarantees (Fig.1). The promising trend of AIA China’s VONB margin can be attributed to 1) all long-term savings products sold in agency were shifted to par (vs. 1-2M25: >80%); 2) proactive repricing; and 3) lengthening policy payment
　　periods. The unique AIA China growth strategy is the key highlight of the results and AIA targets a 40% VONB CAGR in FY25-30E for the 9 new
　　geographies entered post-2019. Operating RoEV and Operating ROE both hit a record to 17.8%/16.2%, up 2.9pct/1.4pct YoY, thanks to profitable new business and solid earnings growth. In 1H25, dividends and buybacks totalled US$3.7bn, up 10% YoY with the shareholder capital ratio down 17pct from year-start to 219%.
　　Maintain BUY, with target price based on appraisal value at HK$89.0 (unchanged),
　　VONB growth varied across markets. In 1H25, Group VONB rose 14% YoY
　　to US$2,838mn with performances differing across markets. AIA HK still contributed the largest portion of total VONB (35%), up 24% YoY to US$1.06bn, with the MCV and domestic segments each up 30%/18%. We expect 2H VONB to sustain high growth with a newly launched long-term savings plan catering
　　to customers’ demands for money flexibility and wealth accumulation. In HK, VONB channel mix has become more balanced, with IFA/Broker sequentially rebounding by 33% in 2Q25. AIA CN VONB jumped 15% YoY in 2Q25 (1Q25: +8%) prior to the effects of economic assumption changes. We estimate the 1H25 VONB growth before assumption changes was roughly 11% YoY; and expect the interest rate sensitivity to improve in 2H25E given a more benign policy environment. AIA TH VONB surged by 35% (CER), thanks to the front- loading demands in 1Q25 prior to life product repricing. We estimate Thailand’s VONB growth could ease in 2H25E, partially offset by a continued high product margin. AIA MY VONB declined 3% YoY (CER) in 1H25 due to sluggish agency performance, and we expect this trend to sustain till year-end upon the repricing of health/takaful products. AIA SG rose 16% YoY in 1H25, driven by a strong ANP (+31%) offset by a margin retreat (-5pct). Considering geographic mix, we raise our FY25E VONB growth forecast to 15% YoY.
　　Operating ROE/ROEV hit a record. OPAT per share was up 12% in 1H25, driven by robust CSM release (+9%) and enhanced operating variances (+2x), offset by the Global Minimum Tax’s (GMT) first time top-up effect (-US$136mn).
　　New business CSM grew 15% to US$4.4bn in line with VONB, propelling the growth of OPAT. Operating ROE grew 1.4pct YoY to 16.2%, driven by robust earnings and improved operating efficiency. EV operating profit per share jumped 15% YoY in 1H25, resulting in a 2.9pct increase of operating RoEV to
　　17.8%, a record high. We revise up our forecasts on FY25-27E OPAT per share by 2%/2%/3% to US$0.67/0.75/0.84 (table) given improved claims
　　experience and a higher mix of par products that require low guarantees for investment return aided by a disciplined financial management.
　　Valuation/Key risks. The stock is trading at 1.3x FY25E P/EV, or 2.2x P/B with dividend yield at 2.6%. We expect the total shareholder return to be 5.1% in FY25E (2.6% dividend + 2.5% buyback). The insurer raised interim DPS by 10% to US$49 cents, but did not announce buybacks in 2H25E on the call. We think the market is more convinced to a growth story of AIA, rather than a high-yield stock. Thus, the ambitious China Growth Strategy (40% VONB CAGR in FY25- 30E for the 9 new geographies after 2019) will be an appealing catalyst.
　　Maintain BUY with TP (unchanged) at HK$89, which implies 1.6x FY25E P/EV.
　　Future catalysts
　　1) Better-than-expected interest rate movements and equity market performances; 2) Rapid margin expansions amid strong momentum in premium sales growth; 3) On track delivery of AIA China’s Growth Strategy, and faster-than-expected new regions expansion (current annual target: 1-2 regions); 4) Sir Mark Tucker’s on-board as the Group Board Chairman in Oct, 2025 to bring a new clear-cut top-down strategy; 5) Prudent capital management to maintain shareholder capital ratio well above 200% (1H25: 219%, down 17pct from year-start), etc.
　　Downside risks
　　1) Heightened stock market fluctuations and unexpected shock to interest rates and FX movements; 2) Prolonged low interest rate in mainland China; 3) Sluggish sales momentum and margin retreats; 4) Significant drop in shareholder capital ratio and free surplus balance; 5) Tightened underwriting policies across AIA’ s operating markets, etc.