Is AIA Group Limited Worth Investing In?

AIA Group Ltd (AIA) (HKG:1299) is the biggest life insurance group in the Asia-Pacific region. Based in Hong Kong, AIA has established a significant presence in main markets across Southeast Asia and is now serving over 33 million individual policies and over 16 million members of group insurance schemes. As of 26 June 2019, AIA’s market capitalisation stands at HK$ 986.9 billion and is a key constituent of the Hang Seng Index (HSI). 

In this article, I’ll cover its latest financial results, recent updates, and valuation figures. Thus, here are 11 things to know about AIA before you invest. 

  1. Geographical Markets
    Hong Kong remains as AIA’s main geographical segment, accounting for 41% and 31% of total revenues and operating profits after tax (OPAT) in 2018. This is followed by Thailand, China, Singapore, and Malaysia. The amount of total revenues and OPAT contribution from each market are:

Total Revenue(US$ Million)Total Revenue (%)OPAT(US$ Million)OPAT
Hong Kong15,50541.0%1,82934.2%
AIA Group Ltd37,792100.0%5,343100.0%

Source: AIA’s Annual Reports

  1. Net Premiums & Fee Income 
    AIA has achieved CAGR of 12.7% in net premiums & fee income for the last 10 years. It has increased from US$ 10.1 billion in 2009 to US$ 29.7 billion in 2018. Its growth was attributable to consistent increase in the amount of its value of new businesses (VONB) contributed by its agents and bank partners and as well as collecting higher renewal premiums in the 10-year period.

Source: AIA’s Annual Reports

  1. Investment Income
    AIA has achieved CAGR of 9.71% in investment income over the past 10 years, growing from US$ 3.1 billion in 2009 to US$ 7.8 billion in 2018. It is attributable to AIA’s continuous growth in its investment assets, from US$ 73.5 billion in 2009 to US$ 186.1 billion in 2018.

    As of 31 December 2018, AIA’s investment assets are made up of:

Investment Assets
AmountUS$ MillionProportion to Total Assets (%)
Government Bonds51,85427.9%
Government Agency Bonds13,4267.2%
Corporate Bonds73,94939.7%
Structure Securities9920.5%
AIA’s Total Debt Securities 140,22175.3%
Equity Shares18,78310.1%
Interests in Investment Funds19,31610.4%
AIA’s Total Equity Securities38,09920.5%
AIA’s Other Investment Assets7,8224.2%
AIA’s Total Investment Assets186,142100.0%

Source: AIA’s Annual Reports

  1. OPAT 
    Overall, AIA has reported CAGR of 15.7% in OPAT over the last 10 years, increasing from US$ 1.44 billion in 2009 to US$ 5.34 billion in 2018. The increase was attributed to AIA’s consistent growth in net premiums, fee income & investment income and a fall in expense ratio in the period. It has a 10-Year Return on Equity (ROE) Average of 10.37% a year. This has indicated that AIA has earned US$ 10.37 in annual earnings, from every US$ 100.00 it has in shareholders’ equity from 2009 to 2018.

Source: AIA’s Annual Reports

  1. Balance Sheet Strength
    The group’s principal operating company is AIA Co., a Hong-Kong based insurer. As at 31 December 2018, AIA Co. has a total available capital of US$ 9.21 billion and thus, having a solvency ratio of 421% which is a lot higher than minimum regulatory requirement of 100% presently. It has been granted ‘Aa2’ (Very Low Credit Risk), AA (Very Strong), and as well as AA- (Very Strong) with stable outlooks financial strength ratings from Moody’s, Fitch, and Standard & Poor’s.

  2. Recent Acquisition
    On 2 July 2018, AIA has acquired 100% interests in Sovereign Assurance Company Ltd (Sovereign) for US$ 918.0 million. Sovereign is the biggest life insurance company in New Zealand, thus, presenting a wide pool of life insurance customers to AIA. This acquisition is inclusive of a 20-Year Strategic Bancassurance Partnership with ASB Bank Ltd in New Zealand. Hence, this enables AIA to extend its reach into New Zealand beginning in year 2019 and beyond.

  3. More Partnerships
    Looking ahead, AIA intends to leverage on its partnership to expand its bancassurance products. It targets to introduce its unique propositions which is AIA Vitality to differentiate itself from its competitors. To-date, the list of AIA’s partners include:

Source: AIA’s 2018 Annual Results Presentation

  1. P/E Ratio
    In 2018, AIA has made US$ 0.44 in OPAT per share which converts to as much as HK$ 3.45 in OPAT a share. As of 26 June 2019, AIA’s stock price is trading at HK$ 82.25 per share. Thus, its current P/E Ratio is 23.84. It is currently above its 9-Year P/E Ratio Average of 19.52. There is no P/E Ratio calculated for 2009 as AIA was listed on the HKEX in 2010.

  1. P/B Ratio
    In 2018, AIA has net assets of HK$ 25.41 a share. Hence, its current P/B Ratio is 3.24, which is the highest in the 10-year period.

  1. PEG Ratio
    As stated in Point 4, AIA has reported OPAT growth rate of 15.7% a year for the past 10 years. Hence, its current PEG Ratio is 1.52.

  2. Dividend Yields
    In 2018, AIA has paid out HK$ 1.14 a share in dividends per share (DPS) and it is a continuous increase since it first declared DPS in 2011. If AIA is able to maintain its DPS at HK$ 1.14, it offers a current dividend yield of 1.39% per annum, which is below its 8-year average of 1.44% a year.

Source: AIA’s Annual Reports

VIA’s Verdict 

Overall, AIA has delivered consistent growth in total revenues, OPAT and as well as dividend payments over the last 10 years. As such, its stock price had risen in tandem with its financial results during the period. Clearly, growth in profits led to sustainable growth in stock prices. 

Source: Google Finance

As I write, all of AIA’s current valuation ratios are above its 9-Year Averages. So, here is the million-dollar question: ‘Would you invest in AIA at current price of HK$ 82.25 a share today?’ 

Also read more about our analysis about Ping An Insurance Group.

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