AIA Earnings: Fair Value Maintained as New Business Growth Misses Slightly; China Expansion Approved

We maintain our fair value estimate of HKD 96 for AIA. The company’s first three-quarter growth in the value of new business was 20% on an actual currency basis, aligning with our full-year forecast of 20% year-on-year growth. The stock remains undervalued, trading at 1.2 times the projected 2024 embedded value and a 2.6% dividend yield. AIA shares have risen 13% since September, supported by optimistic management guidance for 11% annual growth in operating profit after tax from 2023 to 2026 and a stimulus package in China. Despite this, AIA underperformed peers that saw 25% to 45% increases during the same period. This discrepancy likely stems from investor concerns about macroeconomic headwinds, including depreciating local currencies, stock market volatility, and deflationary pressures in China, which may affect EV and VNB growth. However, we believe some of these headwinds are starting to reverse, such as the emergence of lower US interest rates and a stock market rally in China—factors that should boost AIA’s investment returns and net assets. Consequently, we see potential upside to our full-year growth assumptions for net profit and EV of 48% and 5%, respectively, which could drive a gradual rerating.