AIA Group: Business Highlights Show China New Business Value Growth Better Than Expected

AIA Group’s 01299 financial highlights showed third-quarter value of new business, or VNB, on an actual exchange-rate basis grew strongly at 34% year on year from 15% in the second quarter. Cumulative nine-month VNB growth climbed to 33% from 32% in the first half. We increase our 2023 projections for annualized new premium, and VNB growth by 3 and 5 percentage points, respectively, to 45% and 30%, following the higher-than-expected third-quarter growth. We keep our HKD 96 fair value estimate and we think AIA remains on track to deliver our 2023 growth forecasts for embedded value, or EV, and operating profit at 12% and 2%, respectively, year on year. AIA is trading at 1.4 times 2024 EV equity per share and we believe the stock is undervalued. The results confirm our view that concerns about AIA China’s slowing VNB growth and potential margin dilution from increased sales of saving products were overblown. We continue to expect AIA’s premier agency force and ongoing mainland China expansion plan to support a better-than-peer long-term growth.

Positively, AIA China’s third-quarter VNB growth accelerated to over 20% year on year from 7% in the first half. Agent force remains the core VNB contributor, with double-digit VNB growth in high-margin critical illness insurance. Margin improved from the first half on stable agent VNB margin and higher bancassurance margin due to a favorable product mix shift to protection products. Geographic expansion was on track as AIA received regulatory approval to upgrade its Shijiazhuang license to cover the whole Hebei province. VNB contribution from new markets has increased to over 5% from 4% in the first half, partly driven by the launch of the Henan new branch in May. We expect AIA China to report stronger-than-peer fourth-quarter VNB growth as it is less adversely affected by recent tightened regulations, thanks to its low reliance on bancassurance.