Analysts predict 25pc share price rise for insurer AIA

Strong third-quarter results reflected robust sales, especially from mainland buyers

PUBLISHED : Tuesday, 18 October, 2016, 5:32pm
UPDATED : Tuesday, 18 October, 2016, 10:57pm

Analysts are predicting sharp rises in AIA Group shares in coming months after strong third-quarter results reflected robust sales, especially from mainland buyers.

The world’s third largest insurer, which is Hong Kong listed, reported 25 per cent growth in new business value (NBV) for the period to US$689 million earlier this month, its highest quarterly NBV on record.

The result was largely driven by a surprise 42 per cent surge in annualised new premiums, but its NBV margin narrowed from 57.6 per cent to 50.7 per cent year on year.

AIA’s share price has increased 12 per cent in the year to date, comparing with a 5 per cent gain in the Hang Seng Index. Its price rose 1.94 per cent on Tuesday to end at HK$52.60.

JP Morgan reiterated its “Overweight” rating on the stock with a price target at HK$65 after the results, which would be 25 per cent higher than current levels. AIA’s third-quarter NBV was 8 per cent above its expectations.

BNP Paribas, meanwhile, is now offering a target price of HK$64.07, with a “Buy” rating as the company’s results were 3.8 per cent above its forecast.

HSBC Global Research attributes the strong showing to what it called AIA’s differentiated strategy in mainland China which maintained its strong growth momentum from the first half, aided by its focus on regular protection sales and strong distribution.

“AIA’s Hong Kong and China business led the strong ANP growth due to robust mainland visitor sales in Hong Kong and low life penetrated market in China,” BNP Paribas analyst Dominic Chan said in a research note, predicting the insurer is on track to achieve full year new business growth of 28 per cent.

Although the narrowed NBV margin could spark concern that its product mix shift, or NBV margin improvement has peaked, analysts shrugged off the possibility of a change in its product strategy.

Historically, AIA has focused on product margin enhancement in the third quarter after strong sales growth in the first half.

“Recalling the business environment in the third quarter in 2015, due to rising macro uncertainties, protection sales appear to be management’s focus.,” added JP Morgan in its note.

“Anchored by the company’s historical business strategy and relatively weak sales data points in the Asean market, we initially thought that the company’s previous strategy of product margin improvement would be repeated in the third quarter this year.”

Besides China and Hong Kong, the Asia-focused insurer also posted double digit NBV growth in other markets including Australia and Vietnam and fair performance in Indonesia, although the pricing discipline and product mix restructuring in Singapore affected sales in the country.

In the near term, equity investors are likely to price in business uncertainties in Thailand after its highly-revered King Bhumibol Adulyadej, died on October 13, JP Morgan said.

However, this event is unlikely to have a major effect on investor sentiment, the bank added.

For the past couple of years, Thailand’s NBV contribution to AIA has declined following the sharp geographical mix changes. As of the first half this year, Thailand’s NBV contribution was only 13 per cent comparing 22 per cent in 2011.