AIA Group (1299.HK): Reassessing the Compounding Narrative; Buy
Summaries are public. PDF access requires an active membership; all members have the same access. Sign in
Goldman Sachs reaffirms its Buy rating on AIA Group (1299.HK), raising the 12-month target price from HKD 85 to HKD 96, based on 1.4 times FY27E price-to-embedded-value. While AIA's value of new business growth is structurally lower than the 24% compound annual growth rate seen between 2011 and 2019, estimated at approximately 15% for FY23-28E, Goldman Sachs argues the underlying compounding narrative remains fully intact.
The investment thesis has shifted: embedded value growth has recovered to 15% and is poised for further upside. Concurrently, share buybacks strategically reduce excess capital, driving a structural improvement in return on equity to approximately 17% through FY28E. This structural enhancement in EV growth and capital efficiency sufficiently offsets the slower VONB expansion. Although AIA currently trades at 1.4 times forward P/EV, its highest level since 2023, this valuation still trails the 2013-2023 historical average of 1.7 times.
Goldman Sachs raised FY25-27E VONB estimates by 3-4% following robust third-quarter performance, and lifted the FY25 net profit forecast by 5%, largely reflecting favorable equity market performance in China and Thailand. Ahead of the March 19 full-year results, the firm projects FY25 VONB growth of 18% in actual exchange rate terms, slightly outpacing Visible Alpha consensus. Furthermore, AIA is expected to continue delivering shareholder returns through a 75% dividend payout ratio, including a $6 billion regular buyback and an estimated $1 billion in additional repurchases for 2026.