Prudential - DBS Research 2024-03-22: Firm Growth Momentum Ahead

• We attended Prudential (SGX:K6S)’s FY23 earnings call on 20 March 2024 and were left with positive takeaways.

FY23 VNB growth beat, with an increase of 45% y-o-y

• Prudential delivered robust VNB in FY23, with an increase of 45% y-o-y to US$3.1bn on a constant exchange rate (CER) basis. Hong Kong was a significant contributor to growth, accounting for 45% of group VNB, with both its VNB and annualised premium equivalent (APE) sales growing by more than 3x compared to the prior year.
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• Meanwhile, bancassurance VNB declined by 8% y-o-y to US$0.8bn, mainly due to challenging market conditions in China and Vietnam.
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Expect sustainable growth and stable product mix in HK

• Investors have been concerned about the sustainability of growth in Prudential’s HK market and the decline in the VNB margin.
• We expect Prudential to deliver robust high-teen growth in VNB in FY24F, based on multiple positive signs:
  1. Its product mix has normalised in 2H23 and it is expected to maintain a stable H&P mix (~60% of new business cases) in FY24F, and thus a stable VNB margin, excluding any economic impact;
  2. mainland Chinese visitor (MCV) arrivals accounted for only 60%-65% of the peak level in 2018, leaving room for a further increase;
  3. the potential US rate cuts are expected to be favourable for the VNB margin (exp. +2%);
  4. with the transformation of its product proposition, Prudential is taking market share in the HK domestic market (7% of HK onshore business in terms of APE in FY23 vs 6% in FY22), and the trend is expected to continue in FY24F; and
  5. the growth momentum has continued in 2M24, according to the management.

A possible turnaround in China

• Read more at SGinvestors.io.

Iris GAO DBS Group Research | Ken SHIH DBS Research | https://www.dbs.com/insightsdirect/ 2024-03-22 SGinvestors.io

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