The value growth of the company's new business exceeded expectations in the first half of the year, and all major markets achieved growth at high value rates. Interest spread loss concerns and asset-side risks are the main factors that suppress the valuation of mainland life insurance stocks, but the company is expected to continue to maintain valuation premiums due to low debt costs and global asset allocation. Currently, the company's valuation is low, and we maintain AIA's “buy” rating.

The value growth of the company's new business in the first half of the year was higher than expected, mainly due to the strong recovery of the Hong Kong business. Although the value ratio declined due to the product structure, it was still at a high level. In the first half of 2023, the company achieved a new business value of US$2.03 billion, an increase of 37% over the previous year (fixed exchange rate, same below). The value ratio of new business was 50.8%, down 4.4 percentage points from the previous year. The main reason for the decline was mainly due to changes in product structure. Among them:

Hong Kong, China achieved a new business value of US$680 million, an increase of 111% over the previous year, and has recovered to 72% of the first half of 2019. The value ratio of new business was 56.9%, down 12.4 percentage points from the previous year. The restoration of the Hong Kong business mainly comes from the recovery of the mainland visitor business. In the first half of the year, the number of agents for mainland customers increased month by month, and the value of new business for mainland visitors increased by 64% in the second quarter compared to the first quarter. Currently, Hong Kong insurance policies still have the advantage of overseas allocation and high dividend yield compared to mainland insurance policies. We expect the Hong Kong business to continue to be booming even after a rapid recovery in the first half of the year.

Mainland China achieved a new business value of 600 million US dollars, an increase of 14% over the previous year. The value ratio of new business was 50.3%, a year-on-year decrease of 17.2 percentage points. Mainland agent channels did not sell the industry's best-selling incremental lifetime life in the first half of the year, and insured products still contributed more than 50% of the number of insurance policies. A high value ratio corresponds to low debt costs. Even in the context of declining return on assets in the mainland, AIA can still maintain a solid investment portfolio and continuous profit release.

Other regions continued their high growth at high value rates. Thailand achieved a new business value of US$330 million, a year-on-year increase of 28%, with a new business value ratio of 91.5%; Singapore achieved a new business value of US$170 million, a year-on-year increase of 5%, with a new business value ratio of 65.0%; and Malaysia achieved a new business value of US$170 million, an increase of 10% over the previous year, with a new business value ratio of 64.8%. India's joint venture Tata AIA Life increased 48% in value of its new business year over year.

Recently, the company's stock price has clearly rebounded along with the Hong Kong stock market, and external shocks have brought allocation points. Since August 2023, both the Hang Seng Index and Hong Kong insurance stocks have experienced a sharp retracement. Among them, AIA and Hang Seng Index have declined by about 10%, while mainland insurance companies' H shares have declined by 15%-20%. Under the impact of real estate and trust risk incidents, investors' concerns about the asset side may be one of the main factors in this round of sharp pullbacks in H-share mainland insurance companies, but this concern does not hold true for AIA. AIA's investment in mainland China is highly stable. More than 90% of AIA's fixed income assets are allocated to government bonds. The scale of real estate-related stocks and bonds is 1.1 billion US dollars, and the scale of urban investment production is 800 million US dollars. Together, the two account for 4.6% of AIA's total assets in China. The asset side of AIA benefits from the global high interest rate environment, and the debt side benefits from China's abundant liquidity and demand release from middle and high-end customers (including mainland China and Hong Kong). It has relatively certain growth and a stable valuation range, and is a reliable variety under external shocks. Almost all of AIA's allocation points in the past three years have come from the impact of external events. Currently, AIA's valuation is 2023E 1.4x PEV, which is already lower than the standard deviation range of 1 times that of the past three years (1.6x, 2x). Long-term investors are advised to pay active attention.

Risk factors: Geopolitical risks have led to continued outflows of foreign capital; weak recovery in China's domestic demand has led to lower than expected business development in mainland China; branch expansion in mainland China has fallen short of expectations; local financial markets are in turmoil in an environment of high global interest rates.

Profit forecasting, valuation and ratings: The value growth of the company's new business exceeded expectations in the first half of the year, and all major markets achieved growth at high value rates. The asset side of AIA benefits from the global high interest rate environment, and the debt side benefits from China's abundant liquidity and demand release from middle and high-end customers (including mainland China and Hong Kong). It has relatively certain growth and a stable valuation range, and is a reliable variety under external shocks. Since the company's NBV growth exceeded expectations in the first half of the year, we raised our NBV growth assumption for the full year of 2023 to 21% (previous value forecast 18%), and adjusted the 2023E/2024E/2025E EVPS forecast to $6.19/6.56/7.14 (previous value forecast: $6.18/6.55/7.14); referring to the company's historical valuation, 1x standard deviation range (1.6x, 2x), we gave the company a PEV valuation of 2 times in 2023. The target price was HK$101 per share, and maintained “buy” ” Ratings.