2021 results slightly beat our expectations
Prudential PLC announced that new business value (NBV) grew 12.8% YoY in 2021: to US$2.53bn. The firm’s embedded value rose 14.5% YoY (excl. the impact of divestment of business in the US) to US$47.36bn. Operating profit rose 15.9% YoY to US$3.23bn (at fixed forex rates), slightly beating the market’s and our estimates as new business growth and NBV margin in some regions beat expectations.
Trends to watch
Annualized premium equivalent (APE) grew steadily and Chinese mainland becoming the largest contributor to APE. The firm’s APE grew 7.8% YoY in 2021 to US$4.19bn, with APE on the Chinese mainland, Singapore, and Malaysia rising 24.6%, 18.7%, and 31.3% YoY but falling 7.0% and 27.3% YoY (at fixed forex rates) in Indonesia and Hong Kong SAR.
Business on the Chinese mainland: In 2021, the Chinese mainland became the largest contributor to the firm’s APE for the first time. APE from the bancassurance and agent channels rose 28% and 25% YoY. The productivity of active agents on the Chinese mainland jumped 69% YoY against the industry headwinds.
Business in Hong Kong SAR: APE growth remained weak on restrictions to border reopening but in line with market expectations. Local business in Hong Kong SAR continued to recover, but is likely to be under significant pressure due to a COVID-19 resurgence in 1Q22.
Business in Singapore: Solid growth despite COVID-19 pressure, and sales through the bancassurance channel remained impressive with APE jumping 30% YoY.
Business in Malaysia: The Islamic insurance business soared 61% YoY and continued to consolidate its leading position.
NBV rose 12.8% on improved business structure. Prudential’s NBV margin rose 2.6ppt YoY in 2021 to 60.2% (at fixed forex rates), while it rose 30.0ppt and 14.5ppt YoY in Hong Kong SAR and Singapore, mainly due to the shift of product mix to high-value protection-type and long-term savings. Value margins in their markets fell due to the channel diversification strategy.
AM business promising; digitalization well on track. Assets under management (AUM) and average and external AUM at asset management subsidiary Eastspring rose 4.3%, 10.8%, and 0.1% YoY in 2021 with operating profit rising 9.8% to US$314mn (at fixed forex rates). We are upbeat on the sustained and steady growth of the firm’s AUM balance, expecting Eastspring to become a new earnings growth driver. In terms of digitalization, the firm’s sales of APE through its Pulse app rose 73% YoY to US$364mn, representing 11% of the total sales. We are optimistic that the firm’s premiums will grow with reduced costs and improved efficiency, thanks to the increase in new clients and premiums from old clients through the Pulse app.
Financials and valuation
Given the volatility on the investment side due to the recent COVID-19 resurgence in Hong Kong SAR and geopolitical risks, we lower our 2022 and 2023 NBV forecasts 7.7% and 8.8%. We also cut our 2022 and 2023 EPS forecasts 5.7% and 0.5% to US$1.04 and US$1.24. We maintain OUTPERFORM and our TP of HK$176 (implying 1.21x 2022e and 1.11x 2023e P/EV) offering 62.5% upside. The stock is trading at 0.74x 2022e and 0.68x 2023e P/EV.
Risks
First-year premium growth disappoints; COVID-19 resurgence; sharp fluctuations in financial market.