Long-Term Investment Value Has Emerged, Initiate With

股

票

研 [Table_Title] Wiley Huang 黄重钧 Company Report: AIA Group (01299 HK)

究 (852) 2509 5409 EquityResearch 公司报告：友邦保险 (01299 HK) [email protected]

17 June 2020 Long[Table_S-Tummaryerm Investment] Value Has Emerged, Initiate with ''Buy''

长期投资价值已显现，首予“买入”

 AIA Group’s (01299 HK) competitive advantages include pure Pan-Asia [Table_Rank] 公 market exposure, geographical diversification, Premier Agency strategy Rating: Buy Initial and abundant incentives. Fast economic and population growth, low 司 insurance density and low insurance depth in Asia provide opportunities for 报评级：买入 (首次覆盖) APAC focused AIA. Geographical diversification of AIA’s business diversifies 告 risk. Premier Agency strategy ensures competitiveness of AIA’s agency

CompanyReport channel, which includes higher recruitment standards and extensive training. 6[Table_Price]-18m TP 目标价 : HK$87.47 In addition, abundant incentives covering all levels of employees and agents Revised from 原目标价:

align employees and agents’ interests with AIA’s shareholders. Share price 股价: HK$71.900

 Hong Kong and mainland China are expected to drive growth in the

coming years. The COVID-19 pandemic has already hurt 1Q2020 growth in 告

Hong Kong, mainland China and Malaysia. However, given relatively strong Stock performance

证 economic growth and deepened insurance awareness, we expect Hong Kong 股价表现报

and mainland China to drive growth. Our forecasts for TWPI growth for [Table_QuotePic20.0 ] 券 % of return

究 2020F/ 2021F/ 2022F are 9.3%/ 11.9%/ 12.7%, respectively. We also expect 15.0

研 OPAT to grow 0.3%/ 19.7%/ 14.7% in 2020F/ 2021F/ 2022F. Due to the

研 10.0

究 COVID-19 pandemic, VONB is forecasted to drop 4.0% in 2020F, but is 5.0

券 expected to grow 17.7%/ 21.8% in 2021F/ 2022F.

报 0.0

证 Initiate TP at HK$87.47 with ''Buy'' investment rating. In the short-term, 告 (5.0)

the pandemic is dragging down premiums growth. Investment return is EquityResearch Report (10.0)

encountering a challenging market environment. We expect AIA China to fuel

growth in the post pandemic period. Meanwhile, we expect AIA to well (15.0) manage low interest rate and volatile stock market situations. At the current (20.0) [Tab valuation, AIA’s long-term investment value has emerged. Initiate with ''Buy'' (25.0) Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 le_I investment rating. HSI Index AIA  友邦保险(01299 HK)的竞争优势包括纯泛亚地区业务覆盖、地域多元化、卓越代理人战略 nfo1 和充足的激励。亚洲快速的经济和人口增长、较低的保险密度和保险深度为专注于亚太地 ] [Table_PriceChange] 区的友邦保险提供了机会。友邦保险业务的地域多元化降低了单一市场上的风险。卓越代 Change in Share Price 1 M 3 M 1 Y 保理人战略可确保友邦代理渠道的竞争力，其中包括更高的招聘标准和广泛的培训。此外，股价变动 1 个月 3 个月 1 年险涵盖各级雇员和代理人的充足的激励使雇员和代理人的利益与友邦保险的股东保持一致。 Abs. % 5.3 6.0 (4.4) 绝对变动 % 行  香港和中国内地预计将在未来几年内推动增长。虽然新冠疫情已经拖累了香港、中国内地 Rel. % to HS Index 2.5 0.7 5.7 相对恒指变动 % 业和马来西亚的 2020 年第一季度的增长，但鉴于相对强劲的经济增长和加深的保险意识， Avg. Share price(HK$) 68.0 68.1 75.3

我们预计香港和中国内地将推动增长。我们预测 2020 年/2021 年/2022 年的总加权保费收平均股价（港元） InsuranceSector 入增长为 9.3%/ 11.9%/ 12.7%。我们还预计营运利润在 2020 年/2021 年/2022 年增长 Source: Bloomberg, Guotai Junan International. 0.3%/19.7%/ 14.7%。由于疫情，2020 年的新业务价值预计将下降 4.0%。但是，2021 年 /2022 年的新业务价值预计将分别增长 17.7%和 21.8%。

 首予 87.47 港元的目标价和“买入”的投资评级。短期内，疫情正拖累保费增长。投资回报正面临充满挑战的市场环境。我们预计友邦保险中国将在疫情过后推动增长。同时，我们预计友邦保险将较好地应对低利率情况和动荡的股市。在当前的估值下，公司的长期投资 [Tab 价值已经显现。我们以“买入”的投资评级进行首次覆盖。 le_I Y[Table_ear End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE Profit] nfo2 年结收入股东净利每股净利每股净利变动市盈率每股净资产市净率每股股息股息率净资产收益率

12/31 (US$ m) (US$ m) (US$) (△ %) (x) (US$) (x) (US$) (%) (%) ] 2018A 32,369 2,597 0.220 (59.3) 41.7 3.230 2.8 0.157 1.7 6.3 友 2019A 47,242 6,648 0.550 150.0 16.8 4.757 1.9 0.162 1.8 13.8 邦 2020F 43,934 5,470 0.454 (17.5) 20.4 4.814 1.9 0.144 1.6 9.5 2021F 51,489 6,484 0.537 18.3 17.3 5.174 1.8 0.172 1.9 10.7 保 2022F 58,312 7,474 0.618 15.1 15.0 5.590 1.7 0.197 2.1 11.5 险 [Table_BaseData]Shares in issue (m) 总股数 (m) 12,090.6 Major shareholder 大股东 JPMorgan Chase & Co. 9.6% Market cap. (HK$ m) 市值 (HK$ m) 869,314.1 Free float (%) 自由流通比率 (%) 90.4% AIA Group (01299 Group AIA HK) 3 month average vol. 3 个月平均成交股数 (‘000) 36,003.4 FY20 Target P/EV (x) FY20 目标 P/EV(倍) 2.0 52 Weeks high/low (HK$) 52 周高/低 (HK$) 88.500 / 60.050 FY20 Target P/B (x) FY20 目标市净率(倍) 2.3

Source: the Company, Guotai Junan International.

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[Table_PageHeader] AIA Group (01299 HK)

Contents

] 1 r a M t h g i R _ e l b a T [

Company Profile ...... 3 Competitive Advantages ...... 4

Business Analysis ...... 5 17 June 2020 1Q2020 Results Review ...... 8 Financial Forecasts ...... 9 Valuation ...... 12 Risk Factors ...... 12

Financial Statements and Ratios ...... 15

] 2 r a M t h g i R _ e l b a T [

(01299 HK)

友邦保险 AIA Group

Report

Company

See the last page for disclaimer Page 2 of 16 [Table_PageHeader] AIA Group (01299 HK)

Company Profile

] 1 r a M t h g i R _ e l b a T [ AIA Group (01299 HK, ''AIA'' or the ''Company'') is a Pan-Asian life insurance company . Founded in 1919, AIA is now a leading life insurer in the Pan-Asia life insurance market headquartered in Hong Kong. AIA offers life insurance and saving plans to meet demand for protection and retirement savings. The productive and high quality agency channel is a key distribution channel and improves competitiveness of the Company. AIA currently operates business in 18 emerging and developed countries/regions in Pan-Asia, including Hong Kong, mainland China, India, Australia and New Zealand. Among key

market segments, measured by total weighted premium income (TWPI) and value of new business (VONB), Southeast Asia 17 June 2020 was the highest performing region, with Hong Kong being the largest market. In the future, mainland China is expected to be the largest.

Figure-1: Geographical Distribution of AIA’s Business Figure-2: AIA’s TWPI Distribution by Segment

Hong Kong Thailand Singapore Malaysia Mainland China Others 100.0 (%) 20.9 19.6 26.7 24.8 22.3 80.0 11.8 13.1 14.1 10.2 10.8 7.0 6.8 6.3 60.0 9.2 8.1 9.2 9.0 8.6 10.3 11.5 ] 2 r a M t h 12.8g i R _ e l b a T [ 13.5 12.8 40.0 15.0 16.7

20.0 36.1 37.5 38.5 25.7 31.1 0.0 2015 2016 2017 2018 2019

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Figure-3: VONB Distribution Mix Figure-4: 2019 MDRT Ranking (MNC)

Agency Partnerships 14,000 12,438

100% 12,000 90% 30% 30% 28% 26% 10,000 80%

70% 8,000 6,675 (01299 HK) 60% 6,000 3,611 50% 4,000 3,036 2,892 2,138 40% 1,919 70% 70% 72% 74% 2,000 友邦保险 30% 0 20%

10%

AIA AIA

AXA AXA

AIA Group

Group Group

plc Life

0% Life Met

Manulife

Financial

New York New Prudential 2016 2017 2018 2019 Prudential

Source: the Company, Guotai Junan International. Source: MDRT website, Guotai Junan International.

Utilizing agency channel to reach high-end customers in Pan-Asia. Generating more than 70% of total VONB over the past four years, proprietary tied agency force is the Company’s core distribution channel. Through execution of Premier Agency strategy, including training and development, AIA’s agents are able to provide high quality services to customers to meet their protection and long-term savings demands. The nature of life insurance products is complicated, especially for those that bear high VONB margin. Hence, agency channels are the best way to tap into the Pan-Asia market and sell high margin policies to high-end customers. In terms of agency productivity, AIA Group ranked first in the 2019 MDRT multinational companies ranking. Meanwhile, AIA International (HK operating entity), AIA China, AIA Thailand, AIA Vietnam, AIA Singapore and AIA Macau all ranked within the top 30 in the 2019 MDRT global companies ranking.

Strong presence in Pan-Asia life insurance markets. AIA has a long operation history in the Pan-Asia region, especially in

Southeast Asia. In addition, the Company also actively makes acquisitions to expand geographical operations. For instance, Report AIA acquired ING Malaysia in 2012, expanding market share in Malaysia. In recent years, AIA also completed acquisition of

Sovereign Assurance Company Limited, Commonwealth Bank Australia’s (CBA) life insurance business in New Zealand, in

2018. Meanwhile, the acquisition of Colonial Mutual Life Assurance Society Limited, CBA’s life business in Australia is still Company pending regulator’s approval. Measured by latest premiums data from insurance regulators in different countries/regions, AIA

See the last page for disclaimer Page 3 of 16 [Table_PageHeader] AIA Group (01299 HK)

exhibits strong presence in key market segments. AIA ranks first in Hong Kong and Thailand, ranks second in Malaysia, and

ranks third in Singapore. However, AIA’s ranking in mainland China is not very competitive] 1 comparer a M dt toh localg i lifeR _ insurancee l b a T [

giants, due to mainland China’s strict regulation in the insurance sector. Only when compared to other foreign life insurers in

mainland China does AIA rank first in this market segment.

Table-1: AIA’s Presence in Key Segments Segment First Second Third

Hong Kong AIA International Prudential (HK) Life China Life 17 June 2020 Mainland China China Life PingAn Life CPIC Life Thailand AIA Muang Thai Life Thai Life Singapore Great Eastern Life AIA Spore Prudential Malaysia Great Eastern Life AIA Prudential Source: HKIA, CBIRC, TLAA, MAS, IMS, Guotai Junan International.

Expected growth acceleration in mainland China. Due to mainland China’s financial reform, restrictions for foreign life insurance companies have been removed since 2020. According to market news, AIA has already submitted applications to transform branches in mainland China into a subsidiary in mainland China since January 2020. Before 2020, AIA was the only foreign wholly owned life insurer in mainland China. Despite being wholly-owned by AIA, AIA China is only allowed to operate

] 2 r a M t h g i R _ e l b a T [ business in Shanghai, Guangdong, Shenzhen, Beijing and Jiangsu through the establishment of local branches. Under regulation in mainland China, setting up local branches is the first step. However, AIA didn’t set up a subsidiary in mainland China to monitor business. Five branches are directly managed through AIA headquarters. Each branch holds a life insurance license, which means that AIA owns five life insurance licenses in mainland China. As CBIRC won’t issue new licenses to AIA to expand business in other provinces, Tianjin and Shijiazhuang has been set up under Beijing branch. This has been the rationale for AIA to turn its branches in mainland China into a subsidiary. After setting up its mainland China subsidiary, AIA has been able to expand business to other affluent provinces and cities. Thus, the market is expecting robust growth in scale of AIA’s mainland China business.

Steady historical performance since listing. AIA has delivered steady growth since listing. AIA recorded 2.8x TWPI growth during 2010-2019, equivalent to CAGR of 11.3%. Operating profit after tax (OPAT), defined as net profit excluding short-term

fluctuations in equity and real estate, also achieved CAGR of 13.1% during 2010-2019. Regarding VONB and EV equity, (01299 HK) expansion was also notable with VONB increasing at CAGR of 22.5% and EV equity increasing at CAGR of 11.0% during the same period. AIA’s steady development has been reflected in its share price performance, increasing almost 2.7x since its listing. In addition, AIA Group is the largest composition company in the Hang Sang Index. 友邦保险

Competitive Advantages AIA Group Pure Pan-Asia exposure. We see Pan-Asia advantages which include fast demographical growth, larger young population demographic, expanding middle class and a low level of insurance protection. Generally, Pan-Asian countries are experiencing fast demographical growth and high population of young adults. According to World Population Prospect 2019 by the United Nations, the median age of the total population in Asia and Oceania in 2025 is expected to be 33.7 years and 34.2 years, lower than that of Europe (43.8 years) and North America (39.4 years). In addition, robust economic growth will lead to steady increase in the middle class population, whose demand for life insurance is strong. According to the Organisation for Economic Co-operation and Development (OECD), by 2030 the world’s middle class will reach 4.9 bn, 66% in Asia, more than double that in 2009 (28%). Regarding insurance protection level, despite advanced Asian countries, such as Singapore and Korea having adequate protection levels, remaining Pan-Asia countries/regions have low levels of protection, such as mainland China and India, implying huge opportunity for life insurers.

Geographical diversification. Except for mainland China, India and Australia, AIA’s geographical distribution is mainly in small countries in Southeast Asia. With operations in 18 countries, AIA is able to reduce risks through geographical

diversification. For instance, VONB growth in Thailand and Singapore declined 15.3 ppts and 11.9 ppts in 2013, respectively.

Report

However, total VONB growth during same period only dropped 2.0 ppts given strong growth acceleration in Hong Kong,

Malaysia and mainland China. During 2016-2017, AIA continued to deliver VONB growth above 20% with Singapore and

Thailand recording VONB decrease for two consecutive years. In addition, AIA’s diversified geographical operation also helps Company to secure future growth. Singapore, Malaysia and Thailand (collectively "SMT") were growth driver in the past. However, given

See the last page for disclaimer Page 4 of 16 [Table_PageHeader] AIA Group (01299 HK)

relative adequate protection levels and slow economic growth, SMT has been replaced by Hong Kong as the main growth

driver in recent year. Considering the opening up of mainland China’s life insurance market,] 1 r mainlanda M t Chinah g i isR expected_ e l b to a T [

experience steady growth in the near future. India, another Pan-Asia country with great life insurance growth opportunity, is

already covered by AIA, which should be a growth driver after the eventual slow down in mainland China.

Figure-5: AIA’s VONB by Segment Figure-6: AIA’s VONB AER Growth by Segment

Hong Kong Thailand Singapore Hong Kong Mainland China Malaysia Mainland China Others Thailand Singapore Elimination Malaysia Other 17 June 2020 110.0 (%) Overall 11.7 11.6 12.3 11.0 12.8 60% 90.0 19.5 23.6 22.6 24.4 27.9 40% 7.2 70.0 6.3 6.7 6.2 11.5 8.9 9.3 9.0 6.2 8.4 50.0 14.0 10.8 11.9 11.3 20% 11.8 30.0 42.2 44.4 43.2 43.3 38.7 0% 10.0 (6.0) (5.6) (6.0) (5.3) (5.8) (10.0) -20% 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

] 2 r a M t h g i R _ e l b a T [

Premium Agency strategy. Contributing more than 70% of total VONB in recent years, agency channel is the main distribution channel and helps distinguish AIA from other life insurers. Execution of Premium Agency (PA) strategy is a key competitive advantage for AIA’s agency channel. The PA strategy focuses on extensive training and quality recruitment to develop a distinctive agency force well-equipped to promote more sophisticated savings and protection products which are aligned with customer needs. Since the implementation of PA strategy, AIA has saw increase in the number of active agents. In addition, sophisticated savings and protection products usually bear high VONB margin. Hence, PA strategy has also helped AIA to secure VONB margin improvement.

Comprehensive incentives. Incentives motivate employees to achieve certain business goals of the company. AIA has launched several share-based incentives including share option schemes, restricted share unit schemes, employee share

purchase plans and agency share purchase plan for certain directors, officers, employees and agents. AIA’s incentives cover (01299 HK) not only employees, but also agents, which is really comprehensive. The objective of incentives to all levels of employees and agents, according to AIA, are aligning employees and agents’ interests with those of shareholders. We believe that steady historical performance is supported by group-wide comprehensive incentives. 友邦保险

Table-2: AIA’s Incentives to All Levels of Employees and Agents

AIA Group Incentives Eligible participants Share option scheme Certain directors and officer and employee Restricted share unit scheme Certain directors and officer and employee Employee share purchase plan Certain directors and officer and employee Agency share purchase plan Agents Source: the Company, Guotai Junan International.

Business Analysis

Hong Kong The sixth largest life insurance market in Asia-Pacific. According to the Hong Kong Insurance Authority (HKIA), there are 52 pure long-term insurers and 21 composite insurers in Hong Kong, as at March 2020. Hong Kong’s life premiums increased 11.0% to HK$146.7 bn in 1Q2020. In the HK life insurance market, offshore premiums contributed around 40% of total new business premiums in recent years. Among offshore customers, mainland Chinese visitors ("MCVs") contribute the majority,

accounting for 15.5% of total individual new business premiums in 1Q2020 Individual life new business premiums growth Report boosted in 2016 due to a 1.4x increase in MCVs new business premiums. However, MCV contribution remained sluggish after

2016, which led to relative weak growth in total individual new business premiums. In 1Q2020, due to travel restrictions in

Hong Kong, MCVs premiums dropped 57.7%. Excluding offshore new business premiums, onshore individual life new Company business premiums growth has been maintained at around 10%-15% in recent years. In terms of total premiums and new

See the last page for disclaimer Page 5 of 16 [Table_PageHeader] AIA Group (01299 HK)

business premiums, AIA ranked first in Hong Kong in 1Q2020.

] 1 r a M t h g i R _ e l b a T [

Figure-7: HK Life Premiums and Growth Figure-8: HK MCVs Individual New Business Premiums

Life premiums YOY HK$ b MCVs NB Premiums 600 HK$ b 30.0% 80.0 Proportion of Individual NB Premiums 50.0% 25.0% 500 70.0 20.0% 40.0% 400 60.0 15.0% 50.0 30.0% 17 June 2020 300 10.0% 40.0 5.0% 200 30.0 20.0% 0.0% 20.0 100 10.0% -5.0% 10.0 0 -10.0% 0.0 0.0%

2015 2009 2010 2011 2012 2013 2014 2016 2017 2018 2019

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: HKIA, Guotai Junan International. Source: HKIA, Guotai Junan International.

Figure-9: AIA HK’s TWPI and Growth Figure-10: AIA HK’s VONB and Growth

16.0 US$ b TWPI YOY 40.0% 2,000 US$ b VONB YOY 50.0%

] 2 r a M t h g i R _ e l b a T [

40.0% 12.0 30.0% 1,500 30.0%

8.0 20.0% 1,000 20.0%

10.0% 4.0 10.0% 500 0.0%

0.0 0.0% 0 -10.0%

2016 2012 2013 2014 2015 2017 2018 2019

2012 2013 2014 2015 2016 2017 2018 2019 Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

(01299 HK)

Hong Kong is AIA’s largest market, supported by mainland Chinese visitors. Hong Kong is a small and developed economy. Without MCV premiums inflow, Hong Kong might cease to be AIA’s largest segment. Although the Company didn’t disclose the MCV proportion in TWPI and VONB, we expect MCV contribution to higher than that of the industry. For MCVs, 友邦保险 Hong Kong life insurance is attractive due to 1) US$ denominated policies and 2) flexible product structure. Meanwhile, Hong

Kong’s geographical location is very convenient for MCVs to come and purchase insurance. However, UnionPay banned AIA Group customers from using its services to buy investment-related insurance products from 2016 and CBIRC has released documents related to risks surrounding MCVs purchasing Hong Kong insurance. Despite measures restricting purchasing investment-related products, the insurance connect scheme between mainland China and Hong Kong has been proposed recent years, allowing mainland Chinese customers purchase Hong Kong insurance without visiting Hong Kong. According to market news, setting up service centers in the Greater Bay Area remains on the agenda, while a full-scale insurance connect scheme has been delayed due to social unrest in Hong Kong.

Suffering from a slump in MCV numbers. Due to social unrest since June 2019, Hong Kong has seen notable deterioration in economic growth. Consumer confidence has also declined, leading to a reduction in willingness to purchase insurance in Hong Kong. Accordingly, AIA HK’s single premiums in HK$ and annual premiums in HK$ dropped 16.5% and 14.9%, respectively, in 2H2019. VONB was down by 26.2% during same period. Except for the social unrest, AIA HK is facing negative impacts from the COVID-19 pandemic. Citizens have been avoiding meeting each other, which has brought

difficulties in selling new life policies. Regarding MCVs, the HK government has tightened immigration, effective from February 2020, which banned all MCVs from entering Hong Kong. And the measure is expected to expire in July 2020. Under such

st Report measures, MCV numbers to Hong Kong recorded 99.9% decline during the 1 May holiday. Hence, growth outlook for MCV premiums and VONB is not positive in 1H2020.

Company

See the last page for disclaimer Page 6 of 16 [Table_PageHeader] AIA Group (01299 HK)

Mainland China

The second largest life insurance market in Asia Pacific. Mainland China recorded] 1 steadyr a M lifet h premiumsg i R _ growthe l b in a T [

2011-2019. CBIRC banned short-term savings products and encouraged protection products in 2018, resulting in negative

growth NB premiums growth in 2019. To cope with protection-oriented products strategy encouraged by regulators, life insurers are undergoing transformation to improve agency channel quality and reduce low margin products. Given that protection-oriented products are sophisticated to sell, new business premiums growth remained sluggish in 2019. Due to regulation on foreign capital invested life insurance companies, top market players are all local firms, such as China Life and PingAn Life. 17 June 2020

Figure-11: Mainland China’s Life Premiums Growth Figure-12: Top Five Mainland China Life Insurers by Market Share in 2019 Life premiums YOY 25.0% 2,500 RMB b 35.0% 30.0% 19.2% 20.0% 2,000 25.0% 16.7% 20.0% 1,500 15.0% 15.0% 10.0% 10.0% 1,000 5.0% 7.2% 0.0% 6.2%

] 2 r a M t h g i R _ e l b a T [

4.7% 500 -5.0% 5.0% -10.0% 0 -15.0% 0.0%

China Life PingAn China Huaxia China

2012 2016 2010 2011 2013 2014 2015 2017 2018 2019 2009 Pacific Life Taiping Source: CBIRC, Guotai Junan International. Source: CBIRC, Guotai Junan International.

Figure-13: AIA China’s TWPI and Growth Figure-14: AIA China’s VONB and Growth 6.0 US$ b TWPI YOY 40.0% 1,400 US$ b VONB YOY 60.0%

1,200

5.0 50.0% 30.0% 1,000 4.0 40.0% 800

3.0 20.0% 30.0% (01299 HK) 600 2.0 20.0% 10.0% 400 1.0 友邦保险 200 10.0%

0.0 0.0% 0 0.0%

AIA Group

2012 2014 2016 2013 2015 2017 2018 2019

2012 2013 2014 2015 2016 2017 2018 2019 Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

High quality agency channel. Despite mainland China’s huge market size, AIA’s operations have been restricted by its licenses in only two provinces and four cities. However, AIA China has exhibited steady growth in both TWPI and VONB. TWPI growth has been maintained above 10.0%, while VONB expansion above 20.0%. Given the limited operation areas, AIA China’s growth was driven by productive agency channel. AIA was the first insurer to introduce a proprietary tied agency into mainland China. Through executing PA strategy, AIA China sets higher recruitment standards and provides comprehensive training, ensuring its agents force is equipped with the ability to sell high margin insurance products. The target customers are high-net-worth customers, which is different from strategies of local life insurers serving the mass population. By setting VONB oriented KPI, AIA encourages agents to sell more high margin products. Hence, AIA China ranks second in terms of MDRT members.

Growth acceleration expected. Chinese regulators officially removed restriction on foreign ownership in the insurance sector

effective from 1 January 2020. According to market news, AIA has already submitted applications to CBIRC to convert its

Report

Shanghai office into its mainland China subsidiary. Currently, AIA China operates as five branches, namely Beijing branch,

Shanghai branch, Jiangsu branch, Guangdong branch and Shenzhen branch. Meanwhile, sales operation and service centers in Tianjin and Shijiazhuang were approved earlier by the CBIRC to operate under the Beijing branch. After successful Company conversion, AIA China will be able to establish branches in other provinces, especially affluent provinces, such as Zhejiang

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province and Shandong province. With operations in more provinces and cities, AIA China’s TWPI and VONB growth is

expected to improve. ] 1 r a M t h g i R _ e l b a T [

Southeast Asia: Insurance markets in Southeast Asia vary by country. Southeast Asia generally refers to Singapore, Malaysia, Indonesia, Thailand, Philippines, Vietnam, Cambodia, Brunei, Laos, Burma and Timor-Leste. Among SEA countries, the life insurance market can be different. Singapore, Malaysia and Thailand (collectively "SMT") have a relatively developed life insurance market, whereas other countries have much potential for life insurance markets development. The premiums growth for 17 June 2020 developed markets tends to slow down. Less developed markets are expected to experience fast growth due to economic development and increase in protection awareness. In the SEA life insurance market, AIA, Prudential Plc and Great Eastern Life are major players.

Despite decline in SMT’s contribution, Vietnam and Indonesia have potential to contribute growth. SMT used to contribute around 40% of TWPI and 48% of VONB for AIA. With the rising of Hong Kong market and mainland China market, as well as slowdown in Singapore and Malaysia, the contribution of Singapore, Malaysia and Thailand has been exceeding by Hong Kong and mainland China. Despite not much growth is expected for those three countries, AIA’s Southeast Asia growth is likely to be supported by Vietnam and Indonesia. Vietnam is experiencing fast economic growth, while Indonesia has the

largest population in Southeast Asia. Meanwhile, both countries are still in the primary stage] 2 r ina M lifet insuranceh g i R _ markete l b a T [

development.

Figure-15: AIA SMT’s TWPI Growth Figure-16: AIA SMT’s VONB and Growth 10.0 US$ b TWPI YOY 30.0% 1,200 US$ b VONB YOY 30.0%

8.0 1,000 20.0% 20.0% 800 6.0 10.0% 600 10.0%

4.0 400 0.0% 0.0% 2.0

200

(01299 HK)

0.0 -10.0% 0 -10.0%

2018 2013 2016 2019 2012 2013 2014 2015 2016 2017 2019 2012 2014 2015 2017 2018 友邦保险 Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

1Q2020 Results Review AIA Group VONB dropped 27% yoy on constant exchange rate (CER) in 1Q2020 due to the COVID-19 pandemic impacts. According to 1Q2020 results in May 15, AIA’s VONB dropped 27% yoy on CER basis to US$841 mn. ANP decreased 18% on CER to US$1,483, while VONB Margin was down by 6.9 ppts to 56.6%. The Company attributed the decline to measures to contain the COVID-19 pandemic in Hong Kong and mainland China. However, it also indicated that sales in March had seen improvement due to improved operating environment. Across key markets, Hong Kong recorded substantial VONB decline due to reduction of VONB contributed by MCVs. Mainland China experienced low double-digit VONB decline in 1Q2020, becoming the largest VONB contributor. As for SEA markets, Thailand reported double-digit VONB growth, while Singapore also saw VONB increase. However, Malaysia experienced double-digit VONB decline as lower March VONB offset strong growth in January and February. Other markets also delivered double-digit VONB growth, supported by Australia, Vietnam and Taiwan (China). To alleviate growth pressure, AIA introduced digital sales solutions in Hong Kong and mainland China where impacts were more severe in 1Q2020.

2Q2020 should be tough as well. Despite that the pandemic has been largely contained in Hong Kong and mainland China,

we expect 2Q2020 result to be weak as well. For Hong Kong, immigration restrictions for non-local residents has been Report prolonged to July 7 and cross-border communication policies between Hong Kong and Shenzhen are still not clear, which

brings uncertainties for MCV growth. Regarding SMT, Malaysia imposed lockdown in March, while Singapore and Thailand carried out lockdown in early April. Hence, we think that 2Q2020 results will see VONB decline in Singapore and Thailand. As Company the COVID-19 pandemic outbreak outside mainland China largely occurred in 2Q2020, we also expect other markets to See the last page for disclaimer Page 8 of 16 [Table_PageHeader] AIA Group (01299 HK)

encounter difficulties in VONB growth in 2Q2020.

] 1 r a M t h g i R _ e l b a T [ Financial Forecasts

Despite short-term impacts of the COVID-19 pandemic, Hong Kong and mainland China are expected to drive TWPI growth in the coming years. The COVID-19 pandemic has already hurt 1Q2020 growth in Hong Kong, mainland China and Malaysia. Stepping into 2Q2020, negative impacts of the pandemic are expected to remain due to travel restrictions and lockdowns in Thailand, Singapore and Hong Kong. However, we think that these impacts are short term and TWPI growth should recover in 2H2020. We expect strong economic growth and increase in insurance awareness to attribute to Hong Kong 17 June 2020 and mainland China’s continuous TWPI growth, which has replaced SMT to become the largest premiums driver. Looking ahead, we expect mild SMT growth. Considering AIA China’s geographical expansion, TWPI and VONB from mainland China are expected to record strong growth. Taking into consideration the COVID-19 pandemic, we expect TWPI to grow 9.3%/ 11.9%/ 12.7% in 2020F/ 2021F/ 2022F, supported by Hong Kong and mainland China. In addition, with expectation of geographical expansion in mainland China, we also forecast AIA China’s 2021F and 2022F TWPI growth to exceed 20%.

Figure-17: AIA’s TWPI Forecasts Figure-18: AIA’s TWPI Growth by Segment

US$ b TWPI YOY Hong Kong Mainland China 50.0 17.5% Thailand Singapore Malaysia Others 45.0 15.0% 30.0%

] 2 r a M t h g i R _ e l b a T [ 12.5% 25.0% 40.0 10.0% 20.0% 35.0 7.5% 15.0% 30.0 5.0% 10.0%

25.0 2.5% 5.0%

20.0 0.0% 0.0% 2018 2019 2020F 2021F 2020F 2018 2019 2020F 2021F 2022F

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Figure-19: AIA’s TWPI by Segment Figure-20: AIA’s Premiums by Structure

Hong Kong Mainland China Thailand Single Annual Renewal

100% (01299 HK)

Singapore Malaysia Others 100% 21% 20% 19% 18% 17% 80%

80% 6% 5% 友邦保险 7% 6% 6% 8% 8% 7% 68% 73% 9% 9% 60% 76% 75% 75% 12% 12% 11% 60% 13% 13% 17% 18% 14% 15%

40% AIA Group 40% 13%

16% 20% 15% 20% 37% 39% 40% 40% 40% 13% 14% 14% 16% 13% 11% 11% 11% 0% 0% 2018 2019 2020F 2021F 2022F 2018 2019 2020F 2021F 2022F Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Operating investment yield is facing low interest rate and volatile stock markets. Similar to Chinese life insurers, AIA allocates 80% of investment assets in debt securities, mainly government bonds, government agency bonds, corporate bonds and structured securities. Government bonds and government agency bonds accounted for 44% of fixed income investment, while corporate bonds and structured securities accounted for 50% in 2019. Equity investment, however, is higher than its Chinese peers with 12.3% allocation in 2019. Due to the nature of insurance investment funds, we should evaluate investment performance by approaching operating investment return, which equals actual investment return net of short-term fluctuation of equity and real estate. Unlike fluctuated actual return, operating investment return has remained stable in the past years.

With investments in relatively low rated debts and equity, we expect operating investment yield to be maintained at 4.4% in the

Report next three years. Considering low interest rate and volatile stock markets, we expect operating investment yield to be lower in

2020F-2022F.

Company

See the last page for disclaimer Page 9 of 16 [Table_PageHeader] AIA Group (01299 HK)

Figure-21: AIA’s Investment Assets and Growth Figure-22: AIA’s Investment Assets Allocation

Debt securities Equities Loans&deposits Investment asset YOY ] 1 r a M t h g i R _ e l b a T [ 300 US$ b 27.5% Cash Others 25.0% 100% 4% 4% 4% 4% 4% 250 4% 4% 4% 4% 4% 22.5% 11% 12% 20.0% 80% 13% 13% 13% 200 17.5% 15.0% 60% 150

12.5% 17 June 2020 40% 79% 100 10.0% 78% 77% 77% 77% 7.5% 50 5.0% 20% 2.5% 0 0.0% 0% 2018 2019 2020F 2021F 2022F 2018 2019 2020F 2021F 2022F Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Figure-23: AIA’s Investment Return Figure-24: AIA’s Investment Yields

16.0 US$ b Operating Actual Operating yield Actual yield 8.0% 14.0 12.0

] 2 r a M t h g i R _ e l b a T [

10.0 6.0% 8.0 6.0 4.0% 4.0 2.0

0.0 2.0%

2015 2016 2017 2018 2019

2020F 2021F 2022F

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

OPAT growth to remain flat in 2020F due to the COVID-19 pandemic. Except from short-term equity and real estate

investment fluctuation, OPAT maintained healthy growth in recent years, which we believe should be attributed to relative lower (01299 HK) benefit paid and insurance reserve ratio. Going forward, due to the impact from the COVID-19 pandemic, OPAT is expected to increase 0.3% in 2020F. Meanwhile, we also project OPAT to rebound in 20201F with forecasted growth in 2021F/ 2022F to be

19.7%/ 14.7%. We expect Hong Kong to still be the largest OPAT contributor in 2020F-2022F. However, AIA in mainland China 友邦保险 with geographical expansion should maintain robust OPAT growth momentum, with China expected to replace Hong Kong to be the largest contributor in the near future.

AIA Group Figure-25: AIA’s OPAT and Growth Figure-26: AIA’s OPAT and Shareholders’ Profit

OPAT YOY OPAT Net profit attributable to shareholder 9.0 US$ b 25.0% 9.0 US$ b 8.0 8.0 7.0 20.0% 7.0 6.0 15.0% 6.0 5.0 4.0 5.0 10.0% 3.0 4.0 2.0 5.0% 3.0 1.0 2.0

0.0 0.0% 1.0

2016 2019 2015 2017 2018

2016 2018 2015 2017 2019

2020F 2021F 2022F

2020F 2022F 2021F

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Report

VONB has seen continuous margin improvement since AIA’s listing. VONB delivered notable increase since 2010 with

annual growth above 15% (except for 2019). Broken down by volume and margin, we note that VONB margin of the Company

has exhibited stable upward trend in past years, whereas annualized premiums ("ANP") growth has relatively fluctuated. As for Company geographical distribution, the Hong Kong market accounted for nearly 39.0% of total VONB in 2019, while mainland China

See the last page for disclaimer Page 10 of 16 [Table_PageHeader] AIA Group (01299 HK)

contributed 28.1% during the same period. We expect the margin to remain flat in 2020F due to the pandemic. Given projected

ANP slide, 2020F VONB is expected to drop 4.0%. The recovery in VONB expansion is also] 1 expectedr a M t in 2021Fh g i andR _ 202e 2l F, b of a T [

which VONB is forecasted to grow at 17.7% and 21.8%.

Figure-27: AIA’s VONB and VONB Margin Figure-28: AIA’s VONB by Segment

VONB Margin Hong Kong Mainland China Thailand 7.0 US$ b 80.0% Singapore Malaysia Other VONB YOY Elimination

6.0 110% 17 June 2020 60.0% 11% 13% 13% 13% 13% 5.0 90% 6% 6% 6% 6% 5% 9% 8% 8% 7% 40.0% 8% 4.0 70% 11% 12% 13% 13% 12% 3.0 20.0% 24% 28% 50% 31% 33% 36% 2.0 0.0% 30% 1.0 43% 39% 34% 33% 32% 10% 0.0 -20.0% -5% -6% -6% -6% -6%

-10%

2014 2015 2016 2017 2018 2019

2021F 2022F 2020F 2018 2019 2020F 2021F 2022F Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

] 2 r a M t h g i R _ e l b a T [ Aggressive assumptions lead to higher VONB margin. AIA’s overall VONB margin of nearly 60% in the recent two years is higher than that of its Chinese peers. Especially, AIA China’s VONB margin of around 90% is notably higher than the margin of PingAn. Aggressive embedded value assumptions is another reason. For instance, AIA’s equity risk discount rate (RDR) assumption for mainland China business was 9.75% in 2019, lower than PingAn’s RDR of 11.0%. Hence, lower RDR lead to higher VONB and also a higher VONB margin. As overall return assumptions are not disclosed, we expect investment return assumptions based on OPAT to be around 4.8%.

Figure-29: AIA’s Risk Discount Rate Figure-30: AIA’s Investment Return Assumptions

Hong Kong Mainland China Hong Kong Mainland China Thailand Singapore Thailand Singapore Malaysia PingAn Malaysia 12.0% 4.5% 11.0%

4.0% (01299 HK)

10.0% 3.5% 9.0%

3.0% 友邦保险 8.0% 2.5% 7.0%

6.0% 2.0% AIA Group 5.0% 1.5% 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Embedded value saw strong growth in 2019 due to investment variance, but challenging investment environment should bring pressure for 2020F growth. In 2019, VONB comprised 47.8% of EV operating profit which is defined as EV profit excluding investment variance, other non-operating variances and effect economic assumption change. Another source for EV operating profit, expected return of EV accounted for 47.3%. Operating experience variance and operating assumption change is relatively small. We think that the structure for AIA’s EV growth is very healthy compared with its Chinese peers, who have a higher NBV contribution in their EV expansion. Considering current low interest rate and volatile stock markets, we expect that investment variance will drag down EV growth in 2020F. In addition, operating return for embedded value (Operating ROEV) is expected to be maintained at 15% in 2021F-2022F.

Report

Company

See the last page for disclaimer Page 11 of 16 [Table_PageHeader] AIA Group (01299 HK)

Figure-31: AIA’s EV and Growth Figure-32: EV Profit, EV Operating Profit and ROEV

EV Operating Profit ] 1 EVr a ProfitM t h g ROEVi R _ e l b a T [ 100.0 US$ b EV YOY 25.0% 14.0 US$ b 20.0%

80.0 20.0% 12.0

10.0 15.0% 60.0 15.0% 8.0 10.0%

40.0 10.0% 6.0 17 June 2020 4.0 5.0% 20.0 5.0% 2.0 0.0 0.0% 0.0 0.0%

2015 2016 2017 2018 2019

2017 2015 2016 2018 2019

2020F 2021F 2022F

2020F 2021F 2022F Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Valuation

Appraisal value methodology suggests AIA’s valuation to be 2.01x 2020F P/EV. Considering AIA’s high quality embedded value disclosure, we employ appraisal valuation methodology to value AIA, different to the valuation methodology we use to

] 2 r a M t h g i R _ e l b a T [ value Chinese domestic life insurers. Our cost of equity has been set at 15.5% with 5.0 % long-term growth rate. Our three-stage growth model suggests AIA’s valuation stands at US$136,491 mn, equivalent to 2.01x 2020F P/EV.

Figure-33: AIA’s Historical P/EV

P/EV Avg 2.5 + 1 S.D. - 1 S.D. (x) 2.4 2.3 2.2 2.1 2.0 1.9 1.97 1.8 1.7

1.6 (01299 HK)

1.5

15 18 16 17 19 20

16 17 18 19 20

15 15 16 16 17 17 18 18 19 19

------

- - - - -

------

Jun Jun Jun Jun Jun Jun

Mar Mar Mar Mar Mar

Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec 友邦保险

Source: the Company, Guotai Junan International.

Initiate with ''Buy'' investment rating and TP of HK$87.47; we think that the current valuation is a good time to enter. In AIA Group the short-term, the COVID-19 pandemic is dragging down premiums growth. Investment return is also encountering a challenging market environment. However, we expect AIA China to fuel growth in the post COVID-19 pandemic period. Meanwhile, we expect AIA to well manage low interest rate situations and volatile stock markets. AIA’s current valuation has been impacted by the pandemic, which is expected to be short term. AIA’s long-term investment value has emerged at the current valuation. We initiate coverage on AIA Group with ''Buy'' investment rating.

Risk Factors

The COVID-19 pandemic lasts longer than expected. AIA might fail to expand its premiums size if the pandemic lasts longer than market expectation.

Failure to expand operations in mainland China market. AIA might fail to expand operations in the mainland China market due to strict regulation in the financial sector and fierce competition in China’s life insurance market.

Tightening of insurance regulatory environment may lead to lower growth. Due to diversified operations, AIA faces Report different regulations in different countries and regions. Regulation tightening in one country or several countries might lead to

lower growth.

Company

See the last page for disclaimer Page 12 of 16 [Table_PageHeader] AIA Group (01299 HK)

Social unrest in Hong Kong may continuously lower premiums growth from mainland Chinese visitors. Social unrest

in Hong Kong might be sustained, which will continuously affect MCV confidence to purchase] 1 r lifea insuranceM t h g polici R ies_ frome l AIAb a T [

Hong Kong. Hence, the Hong Kong market might still face growth pressure.

Long-term interest rate decline will bring pressure on investment return. The long-term interest rate is expected to decline, bringing pressure to AIA’s investment return.

17 June 2020

] 2 r a M t h g i R _ e l b a T [

(01299 HK)

友邦保险 AIA Group

Report

Company

See the last page for disclaimer Page 13 of 16 [Table_PageHeader] AIA Group (01299 HK)

Table-3: Peers Comparison Company Stock Code Currency Last price PE (fiscal year) PB (fiscal year) ROE (%) D/Y (%) Market Cap

] 1 r a M t h g i R _ e l b a T [ (local $) 19A 20F 21F 22F 19A 20F 21F 22F 20F 20F HK$ m HK - Listed companies

AIA Group Ltd 1299 HK HK$ 71.90 16.6 22.2 15.6 14.3 1.9 1.8 1.6 1.5 8.9 1.9 869,314

Manulife Financial Corp 945 HK HK$ 108.00 6.6 7.8 6.4 5.9 0.8 0.7 0.7 0.6 9.3 5.9 209,462

China Taiping Insurance Hold 966 HK HK$ 12.58 5.1 5.4 4.5 4.0 0.6 0.5 0.5 0.4 10.6 2.4 45,213

New China Life Insurance C-H 1336 HK HK$ 26.20 4.9 6.4 5.6 4.8 0.9 0.8 0.7 0.6 13.3 4.4 128,738

People's Insurance Co Grou-H 1339 HK HK$ 2.44 4.2 5.3 4.8 4.3 0.5 0.5 0.5 0.4 9.9 4.5 264,688

China Reinsurance Group Co-H 1508 HK HK$ 0.85 5.4 5.9 5.0 4.4 0.4 0.4 0.3 0.3 6.2 5.8 35,825 17 June 2020

Ping An Insurance Group Co-H 2318 HK HK$ 79.80 8.4 9.6 8.0 6.7 1.9 1.7 1.5 1.3 18.2 3.1 1,459,210

PICC Property & Casualty-H 2328 HK HK$ 7.27 5.9 6.6 5.9 5.4 0.9 0.8 0.7 0.7 12.6 6.3 161,705

Prudential Plc 2378 HK HK$ 117.20 49.4 10.3 8.4 7.6 2.0 2.0 1.8 1.5 16.7 2.6 305,758

China Pacific Insurance Gr-H 2601 HK HK$ 21.30 6.1 7.0 6.3 5.6 1.0 0.9 0.8 0.7 13.6 6.7 248,312

China Life Insurance Co-H 2628 HK HK$ 16.02 6.9 9.1 8.0 6.7 1.0 1.0 0.9 0.8 10.8 3.9 748,167

ZhongAn Online P&C Insuran-H 6060 HK HK$ 29.30 n.a. n.a. 67.8 34.8 2.6 2.6 2.5 2.4 (0.5) 0.0 43,066

Simple Average 10.9 8.7 12.2 8.7 1.2 1.1 1.0 0.9 10.8 4.0 Weighted Average 11.8 11.3 9.5 8.1 1.5 1.4 1.2 1.1 13.3 3.5

China - Listed companies

Ping An Insurance Group Co-A 601318 CH CNY 73.01 8.7 9.2 7.6 6.5 2.0 1.7 1.5 1.3 18.5 3.1 1,459,210

PICC Holding Co-A 601319 CH CNY 6.27 12.3 13.5 11.6 10.3 1.5 1.4 1.3 1.2 11.2 1.8 264,688

New China Life Insurance C-A 601336 CH CNY 44.57 9.5 10.8 9.6 7.9 1.6 1.5 1.4 1.2 13.6 2.4 128,738

China Pacific Insurance Gr-A 601601 CH CNY 27.52 9.0 9.4 8.3 7.1 1.4 1.3 1.2 1.0 14.4 4.6 248,312

] 2 r a M t h g i R _ e l b a T [

China Life Insurance Co-A 601628 CH CNY 27.62 13.5 15.7 13.6 11.2 1.9 1.8 1.7 1.5 11.3 2.1 748,167

Simple Average 10.6 11.7 10.1 8.6 1.7 1.5 1.4 1.2 13.8 2.8 Weighted Average 10.3 11.4 9.7 8.2 1.9 1.7 1.5 1.3 15.4 2.8

Other APAC - Listed companies

Samsung Fire & Marine Ins 000810 KS KRW 191,000.00 12.6 10.6 9.3 7.3 0.5 0.5 0.5 0.5 5.2 4.7 57,774

Db Insurance Co Ltd 005830 KS KRW 44,450.00 7.5 6.7 6.0 4.7 0.5 0.5 0.4 0.4 7.5 3.9 20,094

Samsung Life Insurance Co Lt 032830 KS KRW 46,500.00 8.5 8.8 8.4 7.9 0.2 0.2 0.2 0.2 2.6 5.4 59,379

Hanwha Life Insurance Co Ltd 088350 KS KRW 1,470.00 81.7 5.3 4.9 4.4 0.1 0.1 0.1 0.1 2.0 4.1 8,152

Cathay Financial Holding Co 2882 TT TWD 42.20 8.9 9.5 9.2 8.9 0.7 0.8 0.8 0.7 8.5 4.3 145,395

Shin Kong Financial Holding 2888 TT TWD 8.68 6.5 7.9 8.4 8.2 0.6 0.6 0.6 0.5 7.9 3.3 29,568

Ms&Ad Insurance Group Holdin 8725 JT JPY 3,170.00 9.6 12.8 10.9 8.8 0.7 0.7 0.7 0.7 5.5 5.0 135,754

Dai-Ichi Life Holdings Inc 8750 JT JPY 1,427.00 7.3 50.0 7.7 6.5 0.4 0.4 0.4 0.4 0.9 4.8 123,443

Tokio Marine Holdings Inc 8766 JT JPY 4,828.00 12.6 13.1 12.2 10.3 1.0 1.0 1.0 0.9 7.5 4.5 244,641

Amp Ltd AMP AU AUD 1.74 n.a. 14.3 15.1 13.4 1.2 1.2 1.2 1.2 8.3 1.4 32,009

Great Eastern Holdings Ltd GE SP SGD 20.20 9.5 16.4 10.9 10.4 1.1 n.a. n.a. n.a. n.a. 3.0 53,198

Qbe Insurance Group Ltd QBE AU AUD 8.58 14.3 n.a. 11.8 10.3 1.0 1.0 1.0 0.9 (1.6) 2.0 67,479 (01299 HK)

Simple Average 16.3 14.1 9.6 8.4 0.7 0.6 0.6 0.6 4.9 3.9 Weighted Average 10.9 16.9 10.3 9.0 0.7 0.8 0.7 0.7 5.3 4.2

USA - Listed companies 友邦保险

Aflac Inc AFL US USD 37.35 8.4 8.6 8.4 8.1 0.9 1.0 0.9 1.0 11.3 3.0 207,694

American International Group AIG US USD 33.29 8.8 12.1 7.3 6.4 0.4 0.5 0.4 0.4 3.2 3.9 222,214

Allstate Corp ALL US USD 99.12 7.0 9.1 9.1 8.7 1.3 1.3 1.2 1.1 15.0 2.1 241,301

Aon Plc AON US USD 186.12 29.0 19.0 17.5 15.7 12.8 10.8 5.1 4.5 58.7 1.0 333,328 AIA Group

Chubb Ltd CB US USD 130.46 13.4 13.8 12.1 11.7 1.1 1.1 1.0 1.0 7.9 2.4 456,357

Hartford Financial Svcs Grp HIG US USD 41.49 7.3 9.1 8.0 7.5 0.9 0.9 0.9 0.8 10.5 3.1 115,140

Loews Corp L US USD 33.92 11.0 n.a. n.a. n.a. 0.5 n.a. n.a. n.a. n.a. n.a. 73,983

Lincoln National Corp LNC US USD 42.46 9.6 5.0 4.5 4.2 0.4 0.5 0.4 0.4 10.1 3.8 63,584

Metlife Inc MET US USD 38.69 6.3 7.1 6.5 6.2 0.6 0.5 0.5 0.5 10.6 4.7 272,142

Marsh & Mclennan Cos MMC US USD 107.37 31.2 23.3 21.1 19.0 6.9 6.5 5.4 n.a. 29.4 1.7 424,571

Principal Financial Group PFG US USD 44.20 8.8 9.0 7.8 7.3 0.8 0.9 0.8 0.8 9.8 5.1 93,815

Progressive Corp PGR US USD 80.43 11.9 13.1 14.8 13.7 3.6 2.9 2.6 2.4 24.8 2.8 364,841

Prudential Financial Inc PRU US USD 65.80 6.4 7.5 5.9 5.3 0.4 0.4 0.4 0.4 7.9 6.5 201,433

Travelers Cos Inc/The TRV US USD 116.15 11.6 13.2 11.1 11.0 1.1 1.1 1.1 1.0 8.5 2.9 227,596

Simple Average 12.2 11.5 10.3 9.6 2.3 2.2 1.6 1.2 16.0 3.3 Weighted Average 14.4 13.2 12.0 11.1 3.1 2.9 2.1 1.4 18.8 2.9

Europe - Listed companies

Aviva Plc AV/ LN GBp 287.70 4.5 5.9 5.3 4.8 0.7 0.7 0.6 0.6 11.0 10.8 109,951

Legal & General Group Plc LGEN LN GBp 234.70 7.6 7.9 7.9 7.2 1.5 1.4 1.3 1.2 17.1 7.8 136,235

Prudential Plc PRU LN GBp 1,203.50 50.7 10.3 8.3 7.5 2.1 2.0 1.7 1.5 16.7 2.6 305,507

Standard Life Aberdeen Plc SLA LN GBp 257.70 23.0 18.0 15.7 13.7 0.9 0.9 0.9 1.0 4.9 8.1 57,029

Axa Sa CS FP EUR 19.05 12.6 8.8 6.8 6.3 0.7 0.7 0.7 0.7 7.4 7.6 401,952

Report

Swiss Re Ag SREN SW CHF 76.00 31.1 20.3 9.4 8.0 0.9 0.9 0.8 0.8 3.8 7.8 203,058

Zurich Insurance Group Ag ZURN SW CHF 338.00 12.1 14.9 11.8 11.2 1.5 1.6 1.5 1.5 10.4 5.9 415,011

Simple Average 20.2 12.3 9.3 8.4 1.2 1.2 1.1 1.0 10.2 7.2

Weighted Average 21.3 12.1 9.0 8.2 1.3 1.2 1.2 1.1 10.5 6.5 Source: Bloomberg, Guotai Junan International. Prices as at June 17, 2020. Company

See the last page for disclaimer Page 14 of 16 [Table_PageHeader] AIA Group (01299 HK)

Financial Statements and Ratios

] 1 r a M t h g i R _ e l b a T [

[Table_IncomeStatement] Income Statement [Table_BalanceSheet] Balance Sheet

Year end 31 Dec (US$ m) 2018A 2019A 2020F 2021F 2022F Year end 31 Dec (US$ m) 2018A 2019A 2020F 2021F 2022F

Premiums and fee income 31,271 34,777 37,374 41,860 47,399 Cash equivalents 2,451 3,941 3,395 3,750 4,167

Net premiums and fee income 29,429 32,611 35,674 39,907 45,372 PPE 1,233 2,865 3,152 3,467 3,813

Investment return 2,655 14,350 7,967 11,282 12,634 Investment property 4,794 4,834 7,340 8,107 9,008

Other operating revenue 285 281 292 299 307 Financial investments:

32,369 47,242 43,934 51,489 58,312

Total Revenue - Loans and deposits 7,392 10,086 9,990 11,035 12,260 17 June 2020

Net insurance and inv contract benefits 21,958 31,460 29,259 34,975 39,751 - Available for sale Debt securities 112,485 138,852 174,633 192,896 214,314

Commission and acquisition expenses 3,781 4,283 4,228 4,636 5,086 - At fair value through profit or loss 66,265 84,425 62,600 65,857 69,677

Operating expenses 2,171 2,468 3,110 3,054 3,383 Other assets 35,186 39,129 42,143 47,403 52,840 Other expenses 951 1,128 1,022 1,030 1,098 Total assets 229,806 284,132 303,253 332,514 366,079 Total expenses 28,861 39,339 37,619 43,695 49,318 Insurance contracts liabilities 164,764 189,597 206,567 226,347 250,222

Share of profit of associates 0 (8) (4) 0 0 Investment contracts liabilities 7,885 12,273 11,335 13,842 15,664 Profit before tax 3,508 7,895 6,311 7,793 8,995 Borrowing 4,954 5,757 6,257 6,757 7,257

Income tax (849) (1,208) (808) (1,271) (1,477) Other liabilities 12,797 18,549 20,404 22,444 24,689

profit after tax 2,659 6,687 5,502 6,522 7,518 Total liabilities 190,400 226,176 244,563 269,390 297,831

Shareholders' profit / loss 2,597 6,648 5,470 6,484 7,474 Total shareholders' equity 39,006 57,508 58,236 62,636 67,720

Non-controlling Interest 62 39 32 38 44 Minority interest 400 448 454 488 528

Basic EPS 0.220 0.550 0.454 0.537 0.618 Total equity 39,406 57,956 58,690 63,124 68,247

] 2 r a M t h g i R _ e l b a T [

Diluted EPS 0.220 0.550 0.454 0.537 0.618

[Table_FinancialRatio] Financial Ratios

[Table_CashFlowStatement] Cash Flow Statement Year end 31 Dec (US$ m) 2018A 2019A 2020F 2021F 2022F

Year end 31 Dec (US$ m) 2018A 2019A 2020F 2021F 2022F OPAT 5,298 5,741 5,761 6,895 7,909

Operating activities OPAT growth 14.3% 8.4% 0.3% 19.7% 14.7%

Profit before tax 4,170 7,895 6,311 7,793 8,995 VONB 3,955 4,154 3,989 4,695 5,720

Financial investments (14,998) (22,693) (32,977) (20,266) (27,618) VONB growth 23.4% 5.0% -4.0% 17.7% 21.8%

Insur and inv contract liabilities&DAC 14,037 18,813 29,221 16,032 22,287 EV 54,517 61,985 67,909 76,922 87,718

Others (1,189) (678) (1,440) (1,178) (902) EV growth 7.4% 13.7% 9.6% 13.3% 14.0%

Cash from operating activities 2,020 3,337 1,114 2,381 2,761

Investing activities BPS (US$) 3.230 4.757 4.814 5.174 5.590

Payments for intangible assets (92) (169) (126) (132) (139) DPS (US$) 0.157 0.162 0.144 0.172 0.197

Payments for PPE (149) (106) (111) (117) (123) (01299 HK)

Others (587) 30 0 0 0 ROE 6.3% 13.8% 9.5% 10.7% 11.5%

Cash from investing activities (828) (245) (237) (249) (262) ROA 1.2% 2.6% 1.9% 2.0% 2.1%

Financing activities ROE (OPAT) 12.9% 11.9% 10.0% 11.4% 12.1% 友邦保险

Net proceed from MTN 990 801 500 500 500 ROEV 16.3% 15.9% 14.8% 15.2% 15.8%

Dividends paid (1,609) (1,982) (1,742) (2,084) (2,390)

Others (165) (339) (193) (193) (193) P/EV 2.03 1.80 1.65 1.46 1.28 AIA Group Cash from financing activities (784) (1,520) (1,435) (1,777) (2,083) P/VONB 28.03 26.86 28.12 23.91 19.64 Effect of exchange rate (49) 35 0 0 0 P/E (OPAT) 20.93 19.43 19.48 16.28 14.21

Net changes in cash 408 1,572 (558) 355 416 P/B 2.84 1.94 1.93 1.79 1.66

Cash at Beg of year 1,787 2,146 3,753 3,195 3,550

Cash at End of year 2,146 3,753 3,195 3,550 3,967

Bank overdraft 305 188 200 200 200

Cash in B/S 2,451 3,941 3,395 3,750 4,167

Source: the Company, Guotai Junan International.

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Company

See the last page for disclaimer Page 15 of 16 [Table_PageHeader] AIA Group (01299 HK)

Company[Table_CompanyRatingDefinition] Rating Definition

The Benchmark: Hong Kong Hang Seng Index ] 1 r a M t h g i R _ e l b a T [

Time Horizon: 6 to 18 months

Rating Definition Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable. Accumulate 收集 Relative Performance is 5% to 15%;

or the fundamental outlook of the company or sector is favorable. 17 June 2020 Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable.

Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable.

Sector[Table_ RatingIndustry DefinitionRatingDefinition] The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform 跑赢大市 Relative Performance>5%;

] 2 r a M t h g i R _ e l b a T [ or the fundamental outlook of the sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform 跑输大市 Relative Performance<-5%; Or the fundamental outlook of the sector is unfavorable.

[DISCLOSURETable_DISCLOSUREOFINTERESTS OF INTERESTS ] (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for GUOTAI JUNAN I (01788 HK),JINSHANG BANK (02558 HK),ZHONGLIANG HLDG (02772 HK),BINHAI INVESTMENT (02886 HK),HAITIAN ANTENNA (08227 HK),Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months.

(5) Guotai Junan and its group companies are making, or will make a market in the securities in respect of the issuer mentioned in this (01299 HK) Research Report. (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies.

友邦保险

DISCLAIMER AIA Group

This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily).

Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan.

Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision.

This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or

located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or

which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction.

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Website: www.gtja.com.hk

Company

See the last page for disclaimer Page 16 of 16