OPAT per share is forecast to grow 5.7% year over year
AIA will disclose the results for the first half of 2024 on August 22. We expect the company's new business value to increase 21%/23% year over year in the first half of the year under actual exchange rate/fixed exchange rate, respectively, corresponding to a 12%/15% year-on-year increase in the 2Q24 single quarter; under the 1H24 real exchange rate, OPAT will increase 2.2% year over year to 3.34 billion US dollars, and OPAT per share will increase 5.7% year over year.
Key points of interest
The mainland passenger business in the Hong Kong market is facing a high base and continued growth in local customers. We expect AIA Hong Kong's mainland passenger business VNB to decline slightly year-on-year, mainly due to the high average premium for the same period last year. As the average premium and mainland customer product structure return to normal, the value ratio of AIA Hong Kong's new business also continues to rise; AIA Hong Kong's local passenger business VNB is expected to rise slightly year-on-year, driving AIA Hong Kong's overall VONB growth trend in the 2Q24 single quarter.
The growth of the mainland Chinese market remains resilient under a high base. We expect VONB to increase 25% year-on-year under the 1H24 AIA China actual exchange rate, corresponding to the 2Q24 single-quarter year-on-year growth rate of about 10%. Under a high base, business growth still shows resilience compared to Chinese peers. Following the personal account tax advantage pension product, AIA China also introduced preferential tax insurance this year. The personal tax deferred attribute has improved the low leverage ratio of health insurance products in mainland China to a certain extent. We expect that this product is also expected to improve the retention rate of the company's new agents, while also helping to improve the declining value ratio caused by the current popularity of savings businesses in mainland China.
Overall, the Southeast Asian market continues to have good new business growth, and the Vietnamese market has passed its high base. We expect that 2Q24 in Singapore, Thailand, and Malaysia will continue the good double-digit VONB year-on-year growth since the beginning of the year. Among other markets, Vietnam has already begun to face business pressure brought about by banking insurance public opinion in 2Q23, and Vietnam's entry into 2Q24 will significantly reduce the drag on the growth rate of other markets.
The performance of the Hong Kong stock market is still a key variable. Observe the flow of foreign capital to find allocation opportunities. AIA is currently trading at 1.0x 2024e P/EV and 10.9x 2024e P/OPAT, both at 0.6%/0.3% of the past 5/10 years. We believe that AIA's long-term competitive advantage is still outstanding. The company's ability to grow and prospects on the debt side and the stability of the asset side are scarce in the Asian insurance industry. However, it is important to note that the company's shareholding is concentrated in foreign-funded institutions. Against the backdrop of continued weakness in Hong Kong stocks, the company's valuation is not driven upward. It is recommended to observe the flow of foreign capital to find allocation opportunities.
Profit forecasting and valuation
Considering investment fluctuations, we lowered 24e EPS by 8.5% to $0.65, basically keeping 25eEPS and 24e/25e included value unchanged, maintaining the outperforming industry rating and target price of HK$74, corresponding to 24e/25e 1.5x/1.3x P/EV. The company is currently trading at 1.0x/0.9x 24e/25e P/EV, with a potential increase of 46%.
risks
The first-year premium growth rate was lower than expected; the capital market fluctuated greatly; long-term interest rates declined rapidly; and overseas financial risk events.