AIA’s First-Half OPAT Posted Resilient Growth as EV Contracted on Mark-To-Market Losses

We maintain our HKD 107 per share fair value estimate following AIA Group’s second-quarter results. Value of new business and operating profit after tax, or OPAT, performance were in line. Six-month VONB contracted 15% year on year on actual currency rates, or a 13% decline on constant currency rates. OPAT remained resilient despite a challenging market environment, growing 4% on constant currency rates, versus 5% growth in the year-ago period. However, embedded value, or EV, declined 3.6% year on year amid mark-to-market investment losses and share buyback, which reduced opening EV by 6% and 2% respectively, leading to a 2.9% decline in EV equity per share. Positively, decline in second-quarter VONB narrowed to 10% from 19% year-on-year contraction in the first quarter. Second-quarter VONB margin also improved to 56.4% from 54.4% in the first quarter. Six-month VONB margin declined 3.8 percentage points to 55.2% from the year-ago level. Management indicated the unfavorable product mix shift was the main driver of the group’s lower margin while product mix in other markets remained largely unchanged.