According to the news app of Cnstock, CICC has released a research report stating that they maintain Pru's (02378) rating of outperform and forecast of earnings, with a target price of HKD 111. Pru updated its capital management policy on June 23, 2024, and announced a buyback plan of USD 2 billion, which will be executed on the London Stock Exchange. The buyback will be completed no later than the middle of 2026. The first phase of the buyback, with a size of USD 700 million, was launched on June 24, 2024, and will be completed before December 27, 2024.

CICC's main points are as follows:

The buyback size is about 7.7% of the current total market value. The buyback will not affect the company's existing growth targets and dividend guidelines. The bank expects the dividend yield to be around 6.4% in 2024E, considering the buyback.

The company plans to buy back USD 2 billion in the next two years. The buyback of USD 700 million will be completed no later than December 27, 2024. Based on the closing price of the Hong Kong stock market on June 24, 2024, the total buyback size/average annual size/execution size in 2024 is about 7.7%/3.8%/2.7% of the company's total market value. The company stated that this buyback would not affect the growth plan and dividend scale guidance for 2022-27 announced in mid-2023 and the dividend level guidance for 2024. According to the company's dividend guidance for 2024 (with a year-on-year growth rate of 7-9%) and considering this buyback, the bank predicts that the dividend yield in 2024E will reach around 6.4%, leading to a significant increase in shareholder return.

The buyback will be executed on the London Stock Exchange, and the bank expects the Hong Kong stock price to also have clear upward drivers.

The buyback will be executed on the London Stock Exchange. Historically, the correlation between Prudential's Hong Kong and UK stock prices has been high, reaching 98% after the improvement in liquidity of Hong Kong stocks through issuance in 2021. The bank predicts that the future trends of Hong Kong and UK stock prices may still converge. In the future, the company plans to decide whether to return additional capital to shareholders based on its free surplus level, reinvestment opportunities, and market conditions. The free surplus ratio required by Prudential's operations is 175-200%. The company will continue to evaluate its own capital level in the future. If the free surplus ratio exceeds the required range, the company will consider returning capital to shareholders if reinvestment opportunities and market conditions permit. Based on the year-end 2023 level, the free surplus ratio of Pru will be 208% after this buyback (242% before buyback).

The buyback demonstrates confidence from the management and emphasizes the importance of the capital markets. The bank reiterates its bullish view on the company's long-term recovery prospects.

Affected by the high base in 2023, Pru's new business is under pressure in 2024, and the company's Hong Kong stock liquidity also puts pressure on the stock price. When the company released its 1Q 2024 results, it announced that it would adjust its capital management policy, and with this buyback plan in place, it is expected to improve the company's valuation discount, emphasizing the importance of the management team's confidence in and attention to the capital markets. The bank remains bullish on the long-term recovery prospects of the company's valuation.

Risk: First-year premium growth rate is lower than expected; significant fluctuations in the capital markets; rapid decline in long-term interest rates; overseas financial risk events.