Prudential reported strong FY23 results with new business profit (NBP) jumping by 45% YoY (CER) to US$3.13bn, beating consensus by 6.4%, thanks to +3ppt NBP margin expansion to 53% in full year. The Group's NBP margin (NBM) sequentially improved in 2H23 to 57% from 49% in 1H23, driven by a trend of margin recovery in 2H in almost all key markets, except the mainland JV CPL, whose NBP fell by 70% YoY in 2H23, adversely affected by tanked bancassurance sales and unfavourable economic sentiment that dragged down demand for protections. Hong Kong sustained strong momentum into 4Q23 with NBP up by 3.3x YoY in 2H23, reflecting its market-first position for mainland Chinese visitors (MCVs). On par with the Group's 5-year growth strategy through 2027, the strong NBP figure fuelled a swing in IFRS profit after-tax to US$1.7bn in FY23, vs a US$1.0bn loss in FY22. To highlight, the board approved full-year dividend of US$0.2 per share, implying a 9% increase over FY22, and guided continued DPS growth by 7%-9% in FY24. Looking ahead, we are positive on the insurer's continued capex on new business growth, improved H&P (Health & Protections) focus, and balance b/w capital allocation and shareholders' return. The trading liquidity in HK and China macro exposure might have suppressed the stock price; yet in the long term, we believe the company's fundamentals should stay intact. Maintain BUY with TP adjusted to HK$137.8 to reflect mark-to-market discount rates and EEV sensitivity.

Strong NBP by market and distribution channel. Agency NBP saw a significant increase by +75% YoY to US$2.1bn, driven by 1) 37% YoY NBP growth from H&P, and 2) a 59% increase in active agent productivity, measured by avg. monthly NBP per agent. The bancassurance slid by 8% to US$793mn, dragged by worsened performance in China and Vietnam. The NBP of CITIC Prudential Life (CPL), the China JV, dropped by 43% YoY to US$222mn in FY23 under joint effects of a 40% YoY APE sales decline and 2ppt margin contraction. Excluding the effects of interest rate and economic movement, NBM would rise by 6ppt YoY, pulled by +2ppt growth in agency and +8ppt uptick in bancassurance, as a result of product re-pricing and a more balanced product proposition under an industry-wide re-rating of premium rates in 2H23.

Expect US$1bn capital deployment in FY24E. Despite a 33% increase in investment to new business, the Group maintained solid capital flexibility and a with-target total leverage ratio at 20%. The IFRS adjusted operating profit grew by 8% YoY (CER) to US$2.9bn due to lower central costs (-23%) and restructuring costs (-31%), and a profit increase of Eastspring by 10.4% YoY. The operating free surplus generation from in-force insurance and AM flatted at US$2.7bn as negative changes in operating assumptions and experience variances enlarged. The Group proposed to deploy US$1bn on distribution for organic growth by reinforcing technology infrastructure and optimizing H&P mix.

Valuation: The stock is now trading at FY24E 0.54x P/EV, near the historical trough, reflecting ongoing concerns surrounding the China exposure and lack of trading liquidity for shares listed in HK. By including mark-to-market risk discount rates and the EEV sensitivity to Group in-force insurance business, we moderately adjust our price target to HK$137.8, implying FY24E 0.94x P/EV.