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How Will AIA Be Affected As China UnionPay Restricts Hong Kong Insurance Purchases? By Shuli Ren
China banned mainland Chinese visitors to Hong Kong from using their UnionPay credit cards to purchase savings-type life insurance policies in Hong Kong, the most draconian measure so far towards Hong Kong’s insurance market.
This is China’s latest attempt to restrict capital outflow.
According to the new rule, mainland Chinese can still purchase pure protection insurances, such as accident, illness and tourism-related policies. However, other programs are “strictly banned”.
In the first half this year, mainland visitors purchased a total of
30.1 billion Hong Kong dollars of insurance products, already on part with the HK$31.6 billion total in 2015.
Insurer AIA Group (1299.Hong Kong) tumbled early February when rumors first surfaced that China would ban mainland Chinese from buying overseas insurance policies, but the Asian insurer’s shares have recovered since on stellar earnings and improving emerging markets sentiments.
How would the latest bombshell affect AIA’s earnings? Bernstein Research‘s Linda Sun-Mattison estimates this new ban can
wipe out 10% of AIA’s 2017 sales:AIA generated c.15% of Group sales from the MCV in YTD June 2016. We estimate that a full implementation of UnionPay ban could reduce our current AIA Hong Kong 2017 sales by 30% to USD1.3bn, implying a 10% reduction to our current 2017 Group sales to USD4.7bn. But the pain will ease off from 2018.
As a result long term EPS and BV growth could be marginally down by 1-2pt. This ban does not affect renewal premiums of in force policies so will not affect AIA’s current EV whilst future EV growth could be hurt by c1-2pt.
But what would happen to AIA’s valuation? AIA last traded at 18.9 times forward earnings, above its five-year average of 17.1 times. This stock has gained 10.3% this year.
Source: Barron's Asia
http://blogs.barrons.com/asiastocks/201 ... purchases/
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