AIA Announces Q1 2016 Operating Data. China Merchants Securities says the data beat expectations across the board and is bullish on AIA. UBS, which is also bullish on AIA, said China has tightened restrictions on domestic residents purchasing insurance products in Hong Kong by brushing UnionPay cards or third-party payments, but the impact on AIA Hong Kong insurance is expected to be limited, and maintains a Buy rating on AIA.
WiseCracker reviewed AIA's first quarter financial results and found that, in terms of total volume, the impact of exchange rate changes resulted in a 5.6% year-on-year increase in weighted total premiums, worse than the same period last year. However, the company's standard premiums grew 23.2% year-on-year. Against the backdrop of rising volumes, AIA's net book value (NBV) for the first quarter of 2016 increased by 36% year-on-year. In addition, AIA's advancement of its value growth strategy and optimization of its product portfolio resulted in a significant increase of 4.9 percentage points in the Company's new business margin to 52.4 percent in the first quarter of 2016 compared to last year year-on-year.
1, China Merchants Securities: new business value growth can be maintained at around 20 percent in the next 3-5 years
Chinese Merchants Securities' previous expectations for the company's standard premium growth and NBV growth were 15 percent and 25 percent, respectively. China Merchants Securities said AIA's actual performance in the first quarter significantly exceeded its expectations.
Merchants Securities believes that AIA's book growth was weakened by the fact that major Asian currencies remained weak against the US dollar in 2016. However, excluding the impact of exchange rate factors, the company's weighted total premiums, standard premiums and value of new business growth rates rose by 7 percent, 9 percent and 8 percent year-on-year to 13 percent, 31 percent and 44 percent, respectively, which demonstrated the company's strong growth momentum.
Merchants Securities believes that the contribution of Mainland China and Hong Kong to AIA is expected to increase further this year as a result of the hot insurance market in Mainland China and the relative stability of the Renminbi and Hong Kong dollar against the US dollar.
The performance of the Company's other three major markets (Singapore, Malaysia and Thailand) has been mixed, with growth in Singapore slowing down; Thailand relying on a marginal boost to achieve positive growth in value of new business; and Malaysia relying on increased agent capacity and improved product protection to achieve double-digit positive growth.
As a result, from the perspective of AIA's overall performance, China Merchants Securities estimates that the growth rates of Mainland China and Hong Kong, which significantly exceeded the AIA average, contributed more to the Company's overall new business growth than the level of the same period last year. China Merchants Securities estimates that, benefiting from the strong growth in Mainland China and Hong Kong, AIA will be able to maintain value-added new business growth at around 20% over the next 3-5 years.
While the Company's valuation is already in a reasonable range (2015/16 EP/EV of 1.72/1.58x respectively, which is close to its average level since listing). However, based on the high quality of AIA's growth and clear trend, as well as the company's product profitability immunity to interest rates and other factors, China Merchants Securities believes that the company still has a good allocation value, a better choice for prudent investors.
CMS maintains its "buy" rating and HK$56 target price.
2, UBS: mainland people to buy Hong Kong insurance payment channels tightened and does not affect the growth of demand
In recent years, the mainland people to Hong Kong to buy insurance enthusiasm has heated up significantly, to promote the rapid growth of the Hong Kong insurance industry.
The Hong Kong Insurance Authority released data in March showing that Hong Kong's insurance industry's gross premiums totaled 365.8 billion yuan (Hong Kong dollars, the same below) in 2015, a year-on-year increase of 10.9 percent. Among the policies issued to mainland visitors last year, new policy premiums amounted to $31.6 billion, accounting for 24.2 percent of the total new policy premiums of $130.9 billion for individual business last year.
Market news on Feb. 3 this year said China UnionPay began restricting mainland visitors to buy insurance in Hong Kong and other offshore areas by setting a $5,000 limit for each transaction. As a result of the news, the market value of Hong Kong's three largest insurance stocks (AIA, Prudential and Manulife) evaporated by HK$52 billion on the following day.
On March 12, there was also news that China had tightened restrictions on domestic residents purchasing insurance products in Hong Kong through third-party payments, and there were voices in the industry that were not optimistic about the performance of Hong Kong's insurance stocks. However, UBS expects this to have a limited impact on AIA Hong Kong.
UBS pointed out in its research report that only 30-35 percent of AIA Hong Kong's business comes from mainland Chinese customers, with more than 80 percent of them paying less than US$5,000 in annual premiums, mostly for savings, and most of the US dollar-denominated insurance policies are mainly transacted by check.
UBS said it expects AIA's earnings to grow due to unabated demand, particularly for its high-margin health insurance.
UBS also said that AIA's results would be helped by the rise in Asian market currencies against the US dollar since the end of last year (an average appreciation of about 3%) and a rebound in equity markets. UBS expects AIA's new business value to grow 24.3%, 20% and 17.2% from 2016 to 2018 respectively.
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