20221216-招银国际-保诚-02378.HK-Asia-focus_leading_player__border-reopening_tailwinds_in_2023_42页_3mb

Prudential PLC (2378 HK) Summary

Core Content

Prudential PLC (Pru) is a leading global player in the life insurance and wealth management industry, with a strategic shift to focus exclusively on Asia and Africa after demerging from European and US operations in 2019 and 2021. The company is poised for long-term growth due to increasing protection and wealth management demands in the affluent Asian population. Key factors influencing its growth include the recovery of the HK-Mainland border and the expected rebound in South East Asian (SEA) markets.

Main Points

1. HK-Mainland Border Reopening

• Impact: The long-awaited border reopening in early 2023 is expected to boost new business growth in Hong Kong, especially in the Mainland China Visitors (MCVs) segment.
• Historical Context: In 2019, MCVs contributed 61% of Pru HK's NBP, which dropped to near zero in 2020 due to lockdowns.
• Comparison with Peers: Pru has a higher exposure to HK domestic markets (58% NBP contribution in 2019) compared to AIA HK (37%).
• Pent-up Demand: The resumption of quarantine-free travel is expected to lead to increased new business momentum in 2023.

2. Recovery in SEA Markets (2H22-2023)

• Progressive Reopening: Countries like Singapore, Indonesia, and Malaysia have gradually eased restrictions since 2Q22.
• Low Base Effect: The low base of NBP growth in 2H21-1H22 due to strict measures is expected to result in a rebound in 2H22 and 2023.
• Timeline of Restrictions: Detailed timelines of restrictions in Singapore, Malaysia, and Indonesia show a clear progression from strict lockdowns to normalized conditions.

3. Inclusion in Indices

• HSCI and SZ-HK Stock Connect: Pru was included in the Hang Seng China Index (HSCI) and Shenzhen-Hong Kong Stock Connect in September 2022, attracting more fund flows.
• Investor Appeal: These inclusions increase stock liquidity and attract investment from Mainland Chinese investors.

4. Strategic Partnerships

• Google Cloud Partnership: A strategic alliance with Google Cloud was announced in October 2022 to enhance Pru's digital platform, Pulse.
• Insurtech Synergies: The partnership is expected to improve sales and service capacity in health and wealth management.

Key Financial Highlights

Earnings Summary

Metric	FY20A	FY21A	FY22E	FY23E	FY24E
Net premiums earned (US$ mn)	21,870	22,373	24,177	27,502	30,896
YoY growth (%)	(49.7)	2.3	8.1	13.7	12.3
Net profit/(losses) (US$ mn)	2,118	(2,042)	1,249	2,061	2,658
Operating EPS (USD)	0.84	0.97	0.93	1.08	1.24
YoY growth (%)	169.5	n.a	n.a	64.9	29.0

Valuation

• Target Price: HK$143.00
• Valuation Method: P/EV based on Gordon Growth Model, reflecting 1.1x FY23E P/EV.
• Key Assumptions:
  • Expected market return: 10%
  • Risk-free rate: 3%
  • Company beta: 0.9
  • Cost of equity (COE): 9.3%
  • Long-term growth rate: 3%
  • Sustainable return on EEV: 10%

Stock Performance

• Market Cap: HK$290,328 million
• 3-Month Return: 17.3%
• 1-Month Return: 18.4%
• Shareholding Structure:
  • BlackRock: 8.56%
  • Vanguard: 8.0%

Geographic Footprint

• Asia & Africa Focus: Pru now operates in 23 markets across Asia and Africa, with 97% of APE from Asian markets.
• Key Markets: Mainland China, Hong Kong, Indonesia, Malaysia, Singapore, India, Vietnam, etc.
• Customer Base: Over 19.3 million life customers in Asia by 30 June 2022.
• Diversified Exposure: Helps offset losses in some markets with gains in others, ensuring sustainable growth.

Distribution Channels

• Multi-Channel Model: Pru utilizes 530,000 agents and 170 bancassurance partners across 27,600 bank outlets in Asia.
• Bancassurance Growth: Mainland China JV (CPL) achieved 28% YoY growth in APE sales in 1H22, with 11 new bancassurance partnerships.
• Digital Pulse: A digital tool that generated 4.8 million leads and US$158 million in APE sales by 30 June 2022. Aimed at enhancing customer experience and operational efficiency.

Product Mix

• Shift to H&P and Savings: Due to pandemic-related health and wealth protection demands, Pru has broadened its product mix towards health and protection (H&P) and savings products.
• Product Categories:
  • Participating contracts: 28%
  • Non-participating savings: 27%
  • Health and protection: 24%
  • Investment-linked savings: 21%
• Takaful and Sharia Business: Maintains leading market shares in Malaysia (30%) and Indonesia (29%).
• Innovative Products: Launched over 200 new and revamped products by end 2021, with 90 being D2C-enabled. A new critical illness product in the GBA achieved 12% of total critical sales in 1H22.

Investment Thesis

• BUY (Initiation): Based on the expected recovery in HK-Mainland border and SEA markets, and the company's strong digital and bancassurance capabilities.
• Sentiment Boosters: Border reopening and index inclusions are key drivers of new business growth.
• Resilience: Pru has shown resilience in APE despite NBP headwinds, and is well-positioned for long-term value creation in Asia and Africa.

Conclusion

Prudential PLC is well-positioned to benefit from the recovery of the HK-Mainland border and the progressive reopening of SEA markets. With a strong digital and bancassurance strategy, and a diversified geographic footprint, the company is expected to capture sustainable growth in the life insurance and wealth management sectors. The inclusion in major indices and strategic partnerships with Google Cloud further enhance its investment appeal.