Wall Street Highlights – Equity

As FY24E new business value (NBV) consensus seems to expect only 15% one year ago (oya) growth, JPM would expect upward consensus NBV revision potential following AIA China’s headcount increase and product margin enhancement in 2H23. Also, JPM note that FY23 embedded value (EV) remains stable despite large economic variances (US$67B, -2% oya vs. 1H23 US$68B, -3% oya). The stock is trading at a trough price-to-embedded value (P/EV) multiple level (1.3x vs. historical average 1.8x) with 9% annual EV growth outlook. Lastly, strong free surplus of US$16B (-9% oya) and US$6B of underlying free surplus generation in 2023 would mean further room for total shareholders’ return upside. Stay Overweight (OW).

Key Positives

JPM see three positives on financial metrics. First, FY23 NBV of US$4.0B beats JPM's forecast thanks to better-than-expected product margin. In particular, the product margin (=NBV/annualized premium equivalent (APE)) enhancement in 2H23 (54.7% vs. 50.8% in 1H23) was positive to JPM given margin dilution was a key market concern in this market. Second, AIA’s resilient OPAT (US$6.2B, -3% oya) and net profit (US$3.8B, 13% oya) would suggest that International Financial Reporting Standards 17 (IFRS-17) (the new accounting regime) is more like tailwind for the bottom line. Third, JPM welcome positive contractual service margin (CSM) balance growth (US$53B, 6% oya vs. JPMe US$50B).

Key Negatives/Question Marks

JPM note that there was no separate information about sales color this Jan/Feb. This could be a key question as China’s macro remains volatile. Also, the company did not separate NBV disclosure on its India joint venture (J/V). As the existing buyback continues, there was no update on new share buyback guidance/outlook. Lastly, the negative economic variance of US$543mn in EV movement was a result of lowering its long-term investment return assumption in China, however partially offset by increases in other major geographies. The local capital summation method (LCSM) coverage ratio (group wide supervision (GWS) basis) declined to 275% (-8%p oya).

Likely Changes to Consensus

FY24E NBV consensus at US$4.6B would imply 15% oya growth. As the company proves resilient and has a strong business operation in Mainland China, JPM expect upward NBV consensus revision potential.

Expected Stock Reaction

JPM expect the market to take the result as marginally positive as the company confirms its healthy growth and strong numbers.

Stock: 1299.HK

Stock Rating: Overweight

12m Price Target: HKD92.00