AIA reports 60 per cent drop in net profit for 2018, but records growth in Hong Kong and China new business
- Net profit down to about US$2.6 billion from about US$6.5 billion in 2017, with new business growing by 22 per cent
- ‘Very strong results’ achieved against backdrop of economic uncertainty and financial market volatility, says CEO
AIA Group, the largest listed life insurance company in Asia-Pacific, on Friday reported a worse-than-expected 60 per cent decline in net profit for 2018, on the back of losses in value of stock and property investments.
Net profit for the year to the end of December stood at about US$2.6 billion, a drop of 60 per cent from about US$6.5 billion in 2017. The result was below Bloomberg analysts’ estimates of a 28 per cent decline to US$4.36 billion. Basic earnings per share stood at 21.6 US cents, which also missed an analysts’ forecast of 35.4 US cents.
Ng Keng Hooi, group chief executive and president at AIA, said the result was very strong “against a backdrop of economic uncertainty and financial market volatility”.
“I do not worry too much about net profit volatility, as it is mainly affected by the short term fluctuation of the stock and property markets,” Ng told the Post in an interview after the results announcement. “The cumulative operating after tax profit and net profit since our IPO are similar at about US$30 billion, which showed that our business could cope with short term volatility.”
The decrease in net profit at AIA was due to a valuation loss of US$2.06 billion in its equities and real estate investments, compared with a gain of US$2 billion in 2017, the company said in a stock exchange filing on Friday. Hong Kong’s benchmark Hang Seng Index fell 14 per cent in 2018, amid concerns over the US-China trade war, interest rate increases and fears of a slowing economy in mainland China. In 2017, it had reported a gain of 36 per cent.
The value of new business, he said, is a more important indicator for insurance companies, however, showed growth of 22 per cent, at US$3.96 billion, which beat a forecast by JPMorgan of 18 per cent growth to US$3.8 billion. The company’s operating after tax profit also rose by 13 per cent to about US$5.3 billion.
Shares in AIA, which was set up in Shanghai in 1919 by American Cornelius Starr, fell 1.6 per cent in early trading on Friday to HK$77.5 before narrowed down 0.3 per cent to close at HK$78.5. The 100-year-old company operates in 18 markets in Asia-Pacific, serving 33 million policyholders.
Credit Suisse analyst Charles Zhou said in a research note on Friday: “We see excellent value in new business performance in China, strong growth in Hong Kong and improved momentum in Thailand.” He said the Swiss bank would maintain an “outperform” rating for AIA.
The company will pay a final dividend of 84.8 Hong Kong cents to bring its full-year dividend to HK$1.14, an increase of 14 per cent from a year ago. It will also pay a special dividend of 9.5 Hong Kong cents per share to reflect the change in financial year.
JPMorgan Securities (Asia-Pacific) analyst MW Kim said AIA’s new business in Hong Kong and China was growing well and urged it to increase its dividend payment. In a report published after AIA’s result announcement, Kim said: “The company’s final dividend per share did not rise sufficiently. Although we welcome the company’s special dividend this year, we believe that it should be an ideal time for the company to set a more generous total shareholder return policy.”
Kim, who described AIA as a “cash-rich” company, said minority shareholders did not benefit from its current dividend policy. “Therefore, it should be reasonable to expect more shareholder-friendly policies in the next couple of years,” Kim added.
Ng however said AIA dividend policy has been good. “We have a payout about one third of our profit as dividend which is in line with market. We need to keep our surplus to support our future growth so we could not increased our dividend substantially,” Ng said.
Hong Kong, AIA ’s largest market, reported a 24 per cent increase in new business value to about US$1.7 billion last year. This is better than the total life insurance new business growth at 3.7 per cent last year, according to the Insurance Authority.
Mainland China was its fastest-growing market, with 30 per cent growth in new business. At US$965 million, it was also AIA’s second-largest market last year.
New business in Singapore grew by 18 per cent to US$357 million. In Thailand, it grew by 12 per cent to US$447 million, and in Malaysia by 8 per cent to US$247 million. AIA’s other markets rose by 13 per cent to US$435 million.
