AIA: We Expect MCV Recovery in Hong Kong To Drive First-Half VNB Growth

In light of stronger-than-expected mainland Chinese visitor, or MCV, data in the second quarter, we modestly lift our full-year premium growth assumption for AIA by 2.5 percentage points to reflect faster-than-expected recovery in the MCV business to 50% of 2019’s level, from 30% in our previous assumptions. We retain our fair value estimate for AIA at HKD 96 per share, however, as the change is not enough to trigger valuation adjustment. The stock remains undervalued, trading at 1.6 times 2023 price/embedded value, or EV, versus its past-six-year average price/EV ratio of 1.9 times. Compared with the 0.2 times to 0.6 times 2023 price/EV ratios of the undervalued Chinese peers, we believe AIA’s valuation premium is justified by its superior agent force, above-peer new business margins, and prudent management of product mix. In the longer run, we believe its ongoing geographic expansion in China should support a stronger-than-peer new business growth momentum. We expect EV growth recovery will be at a mild pace of midsingle digits in 2023, on lower return on EV and smaller contribution from value of new business, or VNB.