By:
Erik Floyd, AIM Student at Marquette University
Disclosure:
The AIM International Equity Fund currently holds this position. This article
was written by myself, and it expresses my own opinions. I am not receiving
compensation for it and I have no business relationship with any company whose
stock is mentioned in this article.
• AIA’s strategic acquisitions
and partnerships will continue to supply inorganic growth and bring in millions
of new customers across the Asia-Pacific region.
• AIA’s strong demand and
growth of insurance in the Asia-Pacific region will continue to drive top line
revenue in the future years.
• AIA has consistently
raised dividends (1.94% FY2020E) and holds a strong cash dividend coverage ratio
(7.3x, FY2019).
• AIA has maintained a well-positioned
management that will continue to increase the efficiency and growth of the company.
Key
points: AIA Group Ltd. Has continued
to develop their long-term acquisition and partnership strategies. Their
acquisition of the Commonwealth Bank of Australia’s life insurance business has
given them access to 13 million new customers with a 20-year bancassurance
distribution agreement allowing them to sell their products to the bank’s
client base. In addition to this deal that will be finalized in December
FY2020, they have capitalized on other partnerships like SK Holdings in South
Korea, giving them access to 30 million new customers.
Economic growth has
continued to accelerate through the Asia-Pacific region, with domestic
consumption being a large driver in consumer spending that will benefit AIA through
increased product sales. The number of medical insurance claims in China
specifically has grown at a 7.04% CAGR over the past seven years (FY12-FY18),
and China annually spends over 6% of GDP on healthcare. The Asia-Pacific region
has a quick growing middle class which will also contribute to the growth of
insurance in the future. AIA’s major brand in this region will benefit them as
they continually improve their image through loyalty and acquisitions.
AIA’s increasing dividends
create a strong reflection of the company’s overall growth and opportunities in
the region. Their FY2019 dividend of 1.5% reflects a 1-year dividend growth of
25%, and a 3-year dividend growth of 75.6%, with forecasts of continual
increases in the future years. In addition to their growing dividend, AIA has a
very strong cash dividend ratio of 7.3x, and strong liquidity ratios that reflects
their profitability through a potential downturn.
AIA’s management has been
on the forefront of creating an extremely reputable brand for AIA through their
products and broad outreach across the Asia-Pacific region. Their management
has been with the company since its IPO in 2010 and many officers have 30+
years of experience in the Asian life insurance industry. Increased ownership
from insiders and institutional investors helps reflect the positive sentiment
that investors have on management and their decisions.
What
has the stock done lately?
Relative to the recent
effects of the Coronavirus outbreak in the global markets, AAGIY has been able
to protect their downside in comparison to the benchmark and has recently
showed signs of recovery. Since March 20th, AAGIY has recovered to -6.87%,
which is 3.5% better than the benchmark’s performance in the same period. AIA recently
granted 5.86 million options to its employees, showing the investment in
themselves through their future performance.
Past
Year Performance: AAGIY has decreased 12.64% in value over
the past year, which is due to the impacts of COVID-19 since the end of January.
Focusing on the performance of AAGIY from April 2019 to January 2020, the stock
increased 10.21% which accurately accounted for the growth of the company. The
current situation has created an opportunity for a deeply discounted P/E
multiple, which has deviated from its 24.10x average to a current P/E of 16.55x.
Source:
FactSet
My
Takeaway
AAGIY’s large exposure
and market share in the Asia-Pacific Region is a big positive factor that will
protect from a potential downturn in the global economy. The company’s efficient
management, acquisition strategy, and unique opportunity to grow top line
revenues in the region will set them up in a very valuable position in the future
years.
A stable and increasing dividend provided by AIA, and a large increase
in the grant of employee options reassures company sentiment and will be a very
steady holding through a potential downturn.
Source:
FactSet
