Consistent with our valuation methodology for other Asian life insurers, we adopt an appraisal value approach to derive our target price for AIA. Under this approach, the fair value is the sum of embedded value (EV) and the total new business value (NBV). In turn, we use a three-stage growth model to project NBV. Key assumptions include 13% first-stage growth (3 years, 2024-2027E), 7.5% second-stage and 3.5% terminal growth. Our target price is HK$99, equivalent to a 2025E P/EV of 1.8x.

The key downside risks to our investment thesis and target price for AIA include: 1) regional regulatory risks across AIA’s markets; 2) any renewed outbreak of COVID-19 in Hong Kong; 3) an external market slowdown; 4) a prolonged low interest rate environment; 5) foreign exchange risks; and 6) disruption from non-traditional players.