AIA Earnings Preview: is China market growth sustainable?

PUBLISHED : Thursday, 27 July, 2017, 8:32am
UPDATED : Friday, 28 July, 2017, 3:57pm

Pan-Asian life insurer AIA Group is slated to announce its first-half financial results before the market opens on Friday. The stock hit a record high on Wednesday on expectations of strong business growth in China and Hong Kong. Here’s what you need to know:

EARNINGS: Consensus forecast for adjusted net income for the six months to May is US$2.46 billion, up 19 per cent year on year.

Earnings per share is estimated at 20 US cents, up from 17.25 US cents a year earlier.

REVENUE: Analysts expect first-half revenue to jump 21 per cent year on year to US$15.57 billion.

STOCK ACTION: Shares of AIA briefly hit a record high of HK$60 on Wednesday, before closing up 1.2 per cent at HK$59.65. So far this year, the stock has risen 37 per cent.


- CHINA BUSINESS GROWTH: In the first quarter, mainland and Hong Kong markets were two big growth drivers in the value of new business (VNB), a key gauge of the insurer’s profitability that measures expected profits from new premiums.

Daiwa Capital anticipated AIA to continue to post a robust VNB growth of 37 per cent in the first half, mainly driven by the mainland Chinese market. It would match the rate recorded in the same period last year.

Leon Qi, executive director for Daiwa Capital, expects the mainland Chinese market to post a 90 per cent surge in VNB, thanks to Chinese consumers’ rising disposable income, strong demand for long-term protection, as well as AIA’s expansion in smaller tier-two Chinese cities.

The Hong Kong market could see a 40 per cent growth in VNB for first half, he added, as affluent mainland Chinese customers continue to buy insurance products in the city despite Beijing’s regulatory control of capital outflows.

AIA embraces customer-centric innovation

“We believe Hong Kong’s life insurance market is still attractive to mainland Chinese customers despite some regulatory tightening that happened in late-2017,” Qi said.

“The wealth effect of Chinese residents and the attractiveness in the pricing of life insurance products in Hong Kong are the long-term drivers of the cross-border business for Hong Kong life insurers.”

Deutsche Bank also expects AIA’s VNB to grow 37 per cent year on year for the first half.

“Key VNB drivers should remain Hong Kong and China, which may have grown 55 per cent and 42 per cent respectively,” the investment bank said in a recent note.

The analysts forecast net profits of US$2.5 billion in the same period, thanks to robust equity markets. Interim dividend is estimated at 25 Hong Kong cents.

The wealth effect of Chinese residents and the attractiveness in the pricing of life insurance products in Hong Kong are the long-term drivers
Leon Qi, analyst for Daiwa Capital

- NEW CEO: Ng Keng Hooi has replaced Mark Tucker as the company’s new CEO since June. Tucker is set to join HSBC as group chairman.

In a media briefing earlier this month, Ng told the South China Morning Post that he will continue the previous development strategy and focus on Asian markets. In particular, he will continue to expand in mainland China and extend the reach to tier-two and tier-three cities.

“China is the most exciting market,” Ng said, adding that the company has seen rapid business growth in some tier-three Chinese cities.

He also said China’s capital control and restrictions on mainlanders buying Hong Kong insurance policies won’t pose too much of a threat to the company’s business in general, as the company also has “good” insurance products on the mainland for customers to choose from.