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AIA Group Ltd 01299

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AIA’s Investment in CPL Provides Access to Mass Market Customers in China’s Bancassurance Channel

Iris Tan, CFA Senior Equity Analyst

Analyst Note

| Iris Tan, CFA |

AIA recently announced its plans to invest CNY 12 billion for about a 25% equity stake in China Post Life, or CPL. AIA and CPL’s parent China Post Group are expected to sign a business cooperation framework agreement to explore additional areas of collaboration. Though the near-term impact is not material, we expect the investment enables AIA’s potential access to Postal Savings Bank of China, or PSBC’s, huge distribution network, which covers mass and emerging mass-affluent customers in China. This is complementary to AIA China’s strategic positioning as the agent-driven differentiated life insurer covering wealthy customers in affluent areas. In addition, we lower our cost of equity assumption to 10% from 12% after reviewing the systematic risk premium for AIA. The new cost of equity for AIA is now more aligned to our existing ex-China Asian financial coverage, which ranges from 9% to 10%. The positive impact on the valuation was partly offset by a lower stage growth assumption of 8% from 12%, in line with the expectation of slowing credit growth to stabilize the financial leverage in China. Thus, our fair value estimate is increased to HKD 107 from HKD 95 per share. Trading at 2.1 times forward price to embedded value, the stock is fairly valued. In 2021, AIA has further widened its lead against local peers in new business value growth amid ongoing industrywide challenges caused by changing customer behavior, the fading population dividends and tightened regulations. We expect upside catalysts include surprises in new business value growth from a low base in the second quarter of 2020, better-than-expected progress in China expansion, the reopening of the Hong Kong-China border and progress in the Greater Bay Area Insurance Connect.

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Company Profile

Business Description

AIA is headquartered in Hong Kong. The company is one of the largest pan-Asian insurance providers with a wide range of products including retirement savings plans, life insurance, and accident and health insurance. AIA was previously part of AIG and went for a separate listing in Hong Kong in 2010. The firm also provides employee benefits, credit life, and pension services to corporate clients. AIA is present in 18 markets and serves the holders of more than 30 million individual policies and over 16 million participating members of group insurance schemes.

No. 1 Connaught Road Central, 35th Floor, AIA Central
Hong Kong, Hong Kong
T +852 28326030
Sector Financial Services
Industry Insurance - Life
Most Recent Earnings
Fiscal Year End Dec 31, 2021
Stock Type
Employees 23,397

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