AIA's VONB jumps 27% in Q1, beats forecasts

AIA responded to investor demands by adding $2b to the existing $10b buyback.

AIA's Value of New Business (VONB) surged by 27% in the first quarter (Q1 2024), significantly outpacing the 19% consensus forecast, a Jefferies Equity Research note said. 

Annualised New Premiums (ANP) grew by 23% at actual FX rates, with margins expanding from 52.3% to 54.2%. 

This robust performance underscores AIA's ability to deliver strong growth despite market challenges, observed Jefferies.

AIA responded to investor demands by augmenting its share buyback program, adding $2b to the existing $10b buyback. 

This move was unexpected, as Jefferies had anticipated further buybacks only after the completion of the existing program. 

Additionally, AIA announced a payout ratio target of 75% of annual net free surplus generation, indicating a commitment to returning capital to shareholders.

Jefferies has aligned its cost of equity assumptions for AIA with those for Prudential, particularly by increasing the risk premium for China and Hong Kong. 

Despite this alignment, AIA maintains a lower group cost of equity compared to Prudential. Importantly, Jefferies did not adjust AIA's Mainland China book valuation due to the absence of legacy liabilities, unlike Prudential.

In Hong Kong, a minor adjustment was made for third-party broker-distributed book risk, but this adjustment was smaller than the one made for Prudential. 

Consequently, Jefferies' price target for AIA has been revised down by 8%, from HK$96 to HK$88, which is significantly less than the 23% reduction in the price target for Prudential.