20140417-博恩斯坦-Country_Growth_and_WhyUSD_Appreciation_Is_Good_for_Fundamentals-_Revise_EPS___BVPS__Outperform__20页_680kb_680kb

AIA (1299.HK) Summary

Core Content

This report provides an analysis of AIA's (1299.HK) performance and outlook for 2014-2015, emphasizing the impact of USD appreciation and rising bond yields on its fundamentals and financial metrics.

Main Points

1. Growth Momentum and Market Performance

• AIA's growth in 2013 was strong, with annualized new premium (ANP) growth of 24% and 7% in 1Q2014, or 13% on a constant exchange rate (CER) basis.
• AIA outperformed the industry average in most of its core markets, with 8pt, 1pt, 2pt, and 3pt growth advantages in Hong Kong, Singapore, China, and Korea, respectively.
• Thailand is the only market where AIA still lags, but the gap is narrowing.

2. Impact of USD Appreciation

• USD appreciation has a positive correlation with rising bond yields, which is beneficial for AIA's growth and profitability.
• AIA's new business ANP is expected to grow at 14% (2013-2015E) compared to the 13% previously forecasted.
• We factor in c.10% USD appreciation in all markets except Hong Kong, which is pegged.

3. Bond Yield Hike and Investment Returns

• We expect a further 100bps rise in bond yields in 2014-2015E, which will lead to a 10bps lift in recurring investment yields to 5.3% from 2015E.
• This hike will cause accounting losses due to bond portfolio devaluation, estimated at US$3.6bn in 2014-2015E.
• Despite the losses, AIA's fundamentals remain strong, and rising yields will provide tailwinds for sales and investment returns.

4. IFRS Equity Growth and Valuation

• The reported IFRS shareholder equity is expected to grow at low single-digit in 2014E and 2015E before recovering to 12% in 2016E.
• ROE is forecasted to improve to 18.6% (excluding excess capital), up from 17.5% previously.
• Valuation target is HK$47 with a 2.9x IFRS book value in 2014E, factoring in bond devaluation and currency headwinds.

5. Investment Conclusion

• Outperform rating is reiterated due to strong fundamentals, operational turnaround, and positive outlook for growth and returns.
• The bond yield correlation with USD appreciation supports AIA's growth, even though it leads to accounting losses.
• Non-Asian investors should note that USD appreciation and bond yield hikes will benefit AIA's long-term performance.

Key Information

EPS and BVPS Update

• Updated 2014E EPS to US$0.27 and 2014E BVPS to US$2.06, down from previous estimates of US$0.28 and US$2.27, due to USD appreciation and bond devaluation.
• ROE is expected to rise to 18.6%, while RoA will improve to 2.9%.

Market-Specific Insights

• Hong Kong: Strongest growth with 28% y/y in 2013, driven by operational turnaround and tourist shoppers.
• Singapore: Growth aligned with industry average, supported by tourist demand and HSBC agency absorption.
• China: Better growth than the regions it operates in.
• Korea: Improved performance in 2013, contrasting with previous underperformance.
• Thailand: Still lags, but turnaround progress is evident, especially in high-margin protection products.

Valuation Metrics

• Target PB x Op Unit is 3.2x, up from 2.9x.
• Excess Return is 8.2%, compared to 7.5% previously.
• Long-term growth rate is 5.5%, with 2014E EPS growth at 9% and 2017-22E EPS growth at 13%.

Financial Forecasts

Income Statement Highlights

• TWPI (Total Weighted Premium Income) is projected to grow to US$21,134mn in 2015E.
• Operating profit before tax is expected to increase to US$3,843mn in 2015E.
• Net profit is forecasted to reach US$3,699mn in 2015E.

Balance Sheet Highlights

• Total assets are expected to rise to US$169,358mn in 2015E.
• Insurance contract reserves are projected to grow to US$121,934mn in 2015E.

Summary

AIA continues to demonstrate strong growth in its core Asian markets, particularly in Hong Kong and Singapore, which benefit from operational turnaround and tourist demand. While USD appreciation and bond yield hikes may lead to accounting losses, they are expected to boost long-term profitability and investment returns. The Outperform rating is reaffirmed, with a target price of HK$47, and the long-term ROE is projected to rise to 18.6%. AIA's financial performance and market position remain robust despite short-term challenges.