Core views

24H1 achieved strong growth in all divisions of the company under a high base in the same period last year. New annualized premiums were +17% year over year, and thanks to the company's continuous optimization of product and channel structures, the value rate of the new business rose steadily, driving the company's value growth. Based on estimates of future cash flow and confidence in future performance growth, the company first proposed future operating profit growth targets in the 2024 interim results conference PPT. After considering the company's capital consumed by the repurchase and its impact on the total number of shares, the company expects OPAT per share to grow by 9%-11% in 2023-2026. We believe that residents' strong demand for savings will continue, the company's strong product and channel power will continue to increase its appeal to customers, and we are optimistic about the long-term growth of the company's value.

occurrences

The company announced its 2024 interim results, with outstanding performance across all channels and divisions 1) The company's annualized new premium (ANP) +17% YoY to $4.546 billion, Q2 +6% YoY to 2.097 billion USD; 2) New Business Value (VONB) +25% YoY to 2.455 billion USD, Q2 +15% YoY to 1.128 billion USD. The new business value rate was +3.3 pct to 53.9% year over year. 3) Included value (EV) reached 68.2 billion US dollars, including operating profit of 5.35 billion US dollars, +21% year on year; R O EV reached 16.5%, +3.3 pct year on year. 4) The basic free surplus (OPAT) was US$3.391 billion, +10% YoY; 5) The interim dividend per share was 44.50 HK cents, +5.2% year over year.

Brief review

1. Premium: Strong demand from residents, and new annualized premium income increased sharply 24H1. Driven by strong demand, the company's new annual premium (ANP) continued to increase rapidly. The company's annualized new premium (ANP) was +17% to 4.546 billion US dollars at the actual exchange rate. Among them, (1) Hong Kong, China: 24H1 still achieved a high growth rate of 9.2% under the high customs clearance recovery rate in the same period last year, showing high demand from local customers and visitors to Hong Kong. (2) Mainland China: Benefiting from the smooth increase in the agent team and the increase in production capacity of the banking insurance channel, the new annualized premium was +15.7%; among them, the company disclosed that more than 80% of the premiums were contributed by middle class customers and above, and the premium size of a single insurance policy in the banking insurance channel was as high as 1.0.09 million US dollars, showing the company's high-quality customer base and differentiated competitive advantage.

(3) Singapore: Capturing Singapore's strong wealth management needs, the company established “A IA International Wealth Management” (AIA International Wealth Management) in Singapore in April 2024 to provide wealth management services to local high-net-worth customers; driven by this, the new 24H1 annual premiums increased sharply by 56.2% year-on-year.

2. Value ratio: Both products and channels have been optimized. The value ratio improved year on year. Previously, the value rate of the company's new business declined markedly due to the popularity of savings products. In the first half of 2024, the company continued to optimize both products and channels, and the value rate of the new business increased by 3.4 pct to 57.2% year-on-year. For example, in mainland China, benefiting from the increase in the number of “best agents” and the improvement in value ratios after the implementation of the new banking and insurance channel reporting regulations, AIA China's new business value rate was +6.4pct to 56.6% year over year; in Hong Kong, China, AIA upgraded and repriced its flagship dividend savings product (upgrading the original Yingyu Multi-Currency Plan 2 to Yingyu Multi-Currency Plan 3), and launched a series of new traditional guarantee products, making the new business value ratio +8.8 pct to 65.7% year over year. In Singapore, since the products sold by AIA in the first half of the year were mainly long-term savings products, the value ratio of its new business was -12.6 pct to 52.4% year over year.

(1) Looking at the product structure, 24H1 residents' demand for savings continues to rise. Combined with wealth management demand, the company increased sales of long-term savings insurance in Singapore, causing the share of traditional insurance products to fall further by 2pct to 38% among the products sold by 24H1, while the share of dividend insurance, including savings products such as the Prosperity Multi-Currency Plan, and other types of insurance, including annuity insurance, increased by 1/2 pct to 32/ 21%, respectively.

(2) Looking at the channel structure, 24H1 may be due to the popularity of savings products and the continued strength of banking channels, the new business value of partner distribution channels increased sharply by 43% year over year to 0.742 billion US dollars, accounting for +3.7 pct to 28.5% year over year.

3. New business value: Strong growth in new business value under the “sharp rise in volume and price”. In summary, benefiting from the rapid growth in premium income and the significant improvement in the value ratio of the new business, the company's new business value (VONB) was +5% to 2.455 billion US dollars year-on-year, and the growth rate was faster than +17% of the annualized new premium revenue.

By region, (1) Mainland China: Benefiting from the increase in the number of agents and production capacity and the improvement in the value ratio after the new banking insurance channel reporting regulations, the value of new business in mainland China was +30% to 0.782 billion US dollars; 24H1 AIA China agents were +26%, and more than 94% of them all had college degree or above; the number of active agents was +11%, and the production capacity per agent was +8%. The flywheel effect is expected to continue to show in the future, thus contributing more value to the company. (2) Hong Kong, China: The value of the new 24H1 Hong Kong MCV business and local business was +24% and 2.8%, respectively, reflecting strong demand from mainland visitors and local residents. According to the company's performance conference, the rapid increase in the value of new local businesses in Hong Kong, China is mainly due to the influx of new immigrants and the increasing appeal of the company's newly launched guaranteed products with dividend savings functions to local residents in Hong Kong, China. (3) Thailand:

Thanks to the growing number of financial advisors (FA) and increased production capacity, as well as a good partnership with Bangkok Bank, the value of the new business in Thailand was +10% to 0.359 billion US dollars year-on-year, and the value ratio of the new business further increased by 1.6 pct to 93.1%. (4) Singapore: Since AIA Singapore launched a large number of wealth management services at 24H1, although the value ratio of the new business was -12.6pct to 52.4% year on year, benefiting from the rapid increase in premium scale, the value of the new business was +27% to 0.219 billion US dollars.

4. Operating profit (OPAT): New premiums drive positive marginal growth in contract services, leading to 9%-11% 24H1 growth in 2023-2026. Under the new standards, the company achieved a total of 3.39 billion US dollars +3.5% year-on-year, a significant increase in growth rate compared to -2.4% of 23H1. Specifically, the marginal release of contract services is still the biggest contributor to operating profit, benefiting from the rapid growth of new premiums, and the marginal release of contract services increased 10% year-on-year. At the same time, thanks to the company's release of some medical claims provisions set up in 2023 at 24H1, and strengthened repricing and claims control of the medical insurance business, the operating difference increased significantly by 45%.

Looking at the subregions, OPAT in Hong Kong, China increased sharply by 15% year over year to 1.223 billion US dollars, which is the most important source of the company's operating profit. In addition, OPAT has improved in regions such as Thailand and Malaysia, while the Indian market experienced a certain decline in 24H1 profits due to the high profit base affected by the new tax law in the same period last year.

Looking at the source, or due to the company's readjustment of dividend insurance product design, the share of interest spreads in operating profit decreased by 1 pct to 26% year over year in the context of the popularity of long-term savings products, while the ratio of death and fee differences was +1 pct to 59% year over year.

Based on estimates of future cash flow and confidence in future performance growth, the company first proposed future operating profit growth targets in the 2024 interim results conference PPT. After considering the company's capital consumed by the repurchase and the impact on the total number of shares, the company expects OPAT per share to grow 9%-11% in 2023-2026.

Investment advice: Strong customer demand continues, and the value improvement effect is obvious. Future growth can be expected. Maintaining the “buy” rating previously, benefiting from the resumption of customs clearance between mainland China and Hong Kong after the pandemic, the strong savings demand from residents was released at an accelerated pace. Under the popularity of long-term savings products, the company's new premium has increased dramatically but the value rate of the new business has declined. The market is concerned about the sustainability of the company's future performance growth and ability to create value. 24H1's high performance continues, with outstanding performance across all channels and divisions, and the value ratio of new businesses has improved markedly while long-term savings insurance is still popular, and the share or even increased, showing the company's outstanding business control and value creation capabilities. Furthermore, for the first time, the company provided guidance on future operating profit growth, demonstrating the company's strong confidence in the continued steady growth of future business.

Looking to the future,

(1) We believe that the strong demand for savings from residents will continue to be the main driving force for the company's performance growth for some time to come. On the one hand, residents' risk appetite declined markedly after the pandemic, and on the other hand, thanks to the excellent investment returns of insurance products in an overseas high interest rate environment and the company's continuous increase in product innovation, its appeal to customers was further strengthened. 24H1 established “AIA International Wealth Management” in Singapore and achieved rapid growth in new premiums in Singapore, which is a strong proof of the strong demand for savings among residents. On the other hand, after the scheduled interest rate for insurance products in mainland China was lowered, the competitive advantage of dividend savings insurance products in Hong Kong was further highlighted; therefore, under the high base for the same period last year, Hong Kong's MCV business was still able to achieve a high growth rate. Therefore, we believe that with AIA's strong brand effect, mature product and service system, and clear customer base positioning and channel construction, its appeal to mainland customers will continue to exist for a long time, and the Hong Kong region will continue to be one of the main contributors to value and profit.

(2) As the company continues to optimize product design and pricing, the company's value ratio is expected to improve, thereby driving the continuation of high value growth in the new business. Previously, due to the popularity of savings insurance products, the value rate of the company's new business declined to a certain extent, but 24H1 continued to make efforts in terms of both products and channels. On the one hand, it upgraded and repriced the original products according to customer needs and early sales conditions, so that the new business value rate of all types of products improved markedly; on the other hand, the company continued to optimize the channel layout, adhere to a development strategy based on the “best agent” and develop high-quality cooperative relationships with banks. The company's value growth is expected to continue in the future.

(3) High-quality agents have always been one of the company's core competencies, and the successful increase of company agents is expected to drive higher value growth in the future. Since 2023, the number of new agents has been successfully increased. 24H1's overall number of newly recruited agents was +22%, with the number of active agents +26% and 19% year-on-year respectively; the number of active agents was +6%, and agent production capacity was +1 2% year over year. A more active agent team and higher agent production capacity are expected to lay a solid foundation for the company's “best agent” strategy and future value growth.

In summary, we believe that the company's long-term operating ability is stable and its competitive advantage is outstanding. We expect the company's NB V to be $4.698/5.264 billion in 2024-2025, respectively, +16.5/ 12.1% year-on-year. The company was given a 2024E 1.5x PEV valuation, corresponding to a reasonable target price of HK$72.56, maintaining a “buy” rating.

Risk warning:

The recovery in premium income from mainland visitors falls short of expectations: Mainland visitors have always been an important source of new premiums for the Hong Kong life insurance market; due to the high competitiveness of insurance products in the Hong Kong market, demand from mainland visitors has been released at an accelerated pace since full customs clearance between the Mainland and Hong Kong, driving a rapid increase in premium income from new construction businesses; however, if the recovery of premium income from mainland visitors falls short of expectations, it may adversely affect the performance of insurance companies.

Capital market fluctuations exceed expectations: If capital market fluctuations exceed expectations, it may cause insurance companies' investment income to decline. On the one hand, it may make it difficult for dividend savings products to achieve the expected yield, thereby harming product competitiveness; on the other hand, it may have a direct negative impact on the company's performance.