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AIA for Q1'21

Asian Quality Compounder


AIA is a leading Asian life insurer with significant operations in China, Hong Kong, Thailand, Singapore, & ASEAN.


Note in the chart below how AIA's share price tracks its NTM book value per share (trading in a range of 1.5~3.0x NTM PB).


Chart 1: AIA BVPS "green" vs Price "blue"


In Nov/Dec AIA lagged the market rally and global financials in particular; investors seemed more interested in high-flying Asian Tech stocks. Globally, life insurers have rallied along with the banks on reflation hopes and rising yields post Biden's victory.


AIA trades in Hong Kong (1299-HKG) and reports in HKD – this is key – the market values the business applying a multiple to Price to Book (2~3x normally) or Price to Embedded Value (1.5~2x). The HKD is pegged to the USD (7.75) and consensus forward expectations for AIA have not caught up to the 10 percent rally in embedded value & book value per share post FX adjustments in THB, SGD, and CNY.


So in theory the stock is 10% cheaper than appears on consensus numbers (and the green line should be closer to HK$50), on a reasonable valuation (middle of its trading range) for accelerating VoNB growth as China expansion ramps.


Technically the break through 90 was going to send the stock towards 100 and thereafter the runway looks clear to 120. A BVPS of HK$50 equates to a price (blue line) of around HK$110~120.


AIA is a large EM gateway stock and a cheap way to play equity inflows to Asia. Look for consensus upgrades in Q1 to support share.


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