AIA Group: VONB Beats Expectations, Shares React Positively but Are Fairly Valued

AIA was up slightly in midday Hong Kong trading following decent first-quarter financial highlights. The value of new business growth accelerated to 23% on an actual exchange rate basis. With the strong start to the year, we now expect AIA’s full-year VONB to grow at a high-teens pace following a 4-percentage-point increase in our premium growth assumption for 2023. However, our fair value estimate stays at HKD 96, given the lower embedded value contribution from VONB and reduced assumption on returns. AIA is fairly valued, trading at 1.7 times 2023 embedded value equity per share, versus the 0.2-0.6 times of Chinese peers. Though we expect strong momentum to continue, we believe the current valuation premium already reflects its resilient and stronger-than-peer VONB growth in 2023. We expect embedded value to recover at a mid-single-digit pace in 2023.