1H18 – robust growth to continue; reiterating Buy

25 August 2018Life InsuranceAIARatingBuyValuation & RisksBanking / FinanceLife InsurancePrice at 24 Aug 2018 (HKD)66.15Price target-12mth (HKD)74.1052-week range (HKD)74.35 - 57.60HANG SENG INDEX27,790Forecast ChangeAsiaHong KongCompanyAIAReutersBloombergExchangeTicker1299.HK1299 HKHSI1299Date25 August 2018Deutsche BankResearch1H18 – robust growth to continue;reiterating BuyLowering forecasts; TP lowered by 3.8% to HK$74.1AIA delivered solid 1H18 results, with 17% growth in VNB (+22% on AER) and EVexpansion of 2.4% amid a challenging market environment. These numbers wereslightly below our forecasts (VNB by 2% and EV by 1%), mainly driven by lower-than-expected growth in China and Other Markets. To account for this and takinginto consideration potentially weaker consumer demand in 2H due to marketuncertainties, we have lowered our 2018E/2019E VNB forecasts by 6.7%/7.6%and our EV forecasts by 0.8%/1.2%. As a result, we lower our target price by 3.8%to HK$74.1. However, we continue to see AIA as a long-term winner in Asia's lifeinsurance market, and we remain confident on the company's execution abilities.We reiterate Buy and recommend that investors buy on weakness.1H18 VNB growthThe company noted that excluding the impact of a high base from HK IFA businessin 1H17, VNB growth would have been 24% on CER (~28% AER). China continuedto be the bright spot in 1H18 with VNB growth of 47.5% (+37% on CER), followedby Singapore +29.0% (+22% on CER), Malaysia +17.0% (+5%), Thailand +14.0%(+5%), Hong Kong +10.1% (+10%) and Other Markets +8.6% (+7%). Despiteslower growth in HK (due to a high base), we note that all markets reportedpositive VNB growth, among which Thailand and Singapore have reversed from adecline in 2017. We believe its geographic diversity and strong execution shouldhelp sustain robust growth, given the growth opportunities in Asia and AIA’sunique competitive positioning.Forecast revisions and growth outlookWe lower our 2018E VNB forecasts by 6.7% to US$3,955mn (+21.0% yoy onCER vs. +28.6% previously), mainly due to revisions in China's growth to 45%(from 69%) and in HK's growth to 16% (from 22%). This implies 2H18E growth of25% yoy, which is slightly above the 24% underlying growth (ex-HK IFA) achievedin 1H18. We believe this could be supported by a relatively low base in 2H17,given the exclusion of Dec-2017, which accounted for some potential impactsfrom weaker consumer demand. We expect growth to be driven by China (+44%),followed by HK (+23%), Singapore (+22%), Malaysia (+21%), Other Markets(+17%) and Thailand (+10%). We forecast growth to moderate to 19% in 2019Eand to 18% in 2020E. Combined with negative impact from inv. and FX, we alsolower our 2018/19/20 EV forecasts by a modest 0.8%/1.2%/1.7%.Esther ChweiResearch Analyst+852-2203 6200Lexie ZhouResearch Analyst+852-2203 6180Key changesTP77.00 to 74.10↓-3.8%Source: Deutsche BankPrice/price relativeAIAHANG SENG INDEX (Rebased)Jan '17Jul '17Jan '18Jul '18502575100Performance (%)1m3m12mAbsolute-4.5-6.411.6HANG SENG INDEX-3.0-9.71.0Source: Deutsche BankDeutsche Bank AG/Hong KongDeutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should beaware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should considerthis report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONSARE LOCATED IN APPENDIX 1. MCI (P) 091/04/2018.Distributed on: 24/08/2018 18:51:09 GMT7T2se3r0Ot6kwoPaProvided for the exclusive use of Research Research at Provisional Access on 2018-08-27T03:15+00:00. DO NOT REDISTRIBUTE 25 August 2018Life InsuranceAIAReiterating Buy – we still see it as a long-term core holding; investment risksWe lower our target price by 3.8% to HK$74.1/share on lower 2018E VNB andEV forecasts. Our target price is based on a target 2018E NB of 15.1x, implying aP/EV of 2.1x. We continue to see AIA as a long-term core holding. Risks includeweaker-than-expected VNB growth, investment market and currencies.Page 2Deutsche Bank AG/Hong KongProvided for the exclusive use of Research Research at Provisional Access on 2018-08-27T03:15+00:00. DO NOT REDISTRIBUTE 25 August 2018Life InsuranceAIAReview and revisions1H18 results review1H18 results snapshotAIA reported 1H18 EV of US$52,012mn (+2.4% hoh) and VNB of US$1,954mn(+21.7% yoy, ~17% on constant currency), implying 2Q18 VNB growth of 17.5%(vs. 25.9% in 1Q18). LT operating profits after tax (OPAT) came in at US$2,653mn(+19%, +14% CER), with net profit at US$1,662mn (-49% due to weak markets).Interim dividend was HK$0.29/shr (+14.0% yoy). Overall, this was a decent set ofresults despite the slight miss.Figure 1: 1H18 performance summary1H181H17%% (CER)VONB1,9541,60522%17%VONB Margin59.5%54.5%5.0ppt4.4pptANP3,2522,90612%9%Embedded Value*52,01250,7792%4%TWPI14,42912,17419%14%LT OPAT2,6532,23319%14%Net profit1,6623,241-49%-50%Shareholder's equity*38,50643