Impact of UnionPay rules more sentiment than fundamentals
Maintain BUY; accumulate on near-term weakness
Prudential (PRU LN; non-rated) dropped 2% last Friday due to media reports of UnionPay’s tighter rules on buying HK insurance (link).
While this news will likely pressure AIA’s near-term share price, we believe the fundamental impact will be manageable, given AIA’s low exposure to large-sized short-term savings policies.
Maintain BUY with TP unchanged, which implies 2.1x FY17E P/EV and 15.4x VNB
Impact on AIA remains manageable
We expect the stricter rules to have manageable impact on AIA’s mainland visitor business because:
1) single premiums sold to nonresidents contributed only <4% of AIA HK’s total new premiums (APE) in 2Q16, while regular premiums accounted for 64%;
2) the average size of regular-premium policies was only <USD10k with most policies <USD5k;
3) AIA has low exposure to <5Y savings policies; and
4) payments could still be made via bank transfers with a USD50k annual cap.
Prudential disclosed that 80% of its mainland customers already have HK bank accounts.
Source: Kim Eng
https://factsetpdf.maybank-ke.com/PDF/3 ... b04f4b.pdf?