AIA is world's No.2 performing insurance stock in past 6 month
* Asian insurance investments have delivered strong returns
* Post sell-down, AIG will still own about 30 pct of AIA
(For more Reuters DEALTALKs, click [DEALTALK/])
By Denny Thomas and Vikram Subhedar
HONG KONG, April 28 (Reuters) - The investors who came to AIA Group's <1299.HK> IPO party early are faced with a tough choice: sell out soon for a nice profit or hang on and hope for a steeper climb.
Next week, the six-month lock-up period for AIA's so-called cornerstone investors expires. That list includes Kuwait Investment Authority (KIA), Hong Kong business group Chow Tai Fook, Guoco Management Co and Malaysian pension fund manager Kumpulan Wang Persaraan.
Cornerstone investors commit to investing in an initial public offering before its price determined but they get firm allotment and in exchange they agree to a lockup - usually six to 12 months. The dominance of mutual funds in the U.S. and European IPO markets precludes the need for cornerstones there, so this kind of early investor is unique to Asia.
While the long-term story for AIA appears strong, as Asia's No. 3 insurer, the case for investors to take money off the table come April 30 seems to be compelling.
The stock has already surged by a third in the past six months, making it the world's second-best performing insurance behind Hong Kong-listed shares of Canada's Manulife Financial Corp <MFC.TO> <0945.HK> over that period, according to Thomson Reuters data.
"We deem people got a bit ahead of themselves in the short-term," Arjan van Veen, an insurance analyst with Credit Suisse said. Credit Suisse has a HK$25 per share 12 month valuation on the stock, which last traded up 3.1 percent at HK$26.35. Van Veen does make the case that the stock is a good longer term story.
AIA's heavy reliance on mature markets, including Hong Kong, Singapore and Korea, makes its high valuations more difficult to justify compared to the Chinese insurers, which are operating in a market that is forecast to grow at about 20-25 percent annum for the next decade, van Veen added.
AIA now trades at about 17.4 times forward earnings, compared with a 17.8 times valuation at China Life Insurance Co Ltd <2628.HK>, the world's largest insurer by market capitalisation.
Investors have rushed in to load up on AIA shares each time there was evidence that AIA's business in Asia was growing, supporting the case for above-average valuations relative to its global peers. For instance, Manulife trades at 11.8 times while British insurer Prudential plc <PRU.L> trades at 13 times.
AIA is making strides as an independent listed company, emerging out of the shadows of parent American International Group Inc (AIG) <AIG.N>. Investors are betting that AIA could improve market share and lift margins under the new CEO Mark Tucker.
Life insurance bets in Asia have delivered handsome returns to patient investors, as buyout funds, including Carlyle Group [CYL.UL] and TPG [TPG.UL], have experienced.
For AIA, cornerstone investors and parent AIG together, have the right to sell around $4 billion worth of shares, or about 10 percent of its outstanding equity. Investment bankers are busy lining up potential sellers, though some analysts believe any selldown will occur in the second half.
Seven cornerstone investors committed about $1.9 billion into AIA's initial public offering (IPO) in October 2010.
If AIG decides to sell its permitted near 3 percent stake, it will continue to be AIA's single biggest shareholder, with about 30 percent stake. Half of AIG's remaining stake will come out of lock-up in October 2011 and the rest in April 2012.
"It's going to be a short-term overhang, but I don't expect there to be any drastic affect on the shares"," Kenenth Yue, an analyst at CCB International. "If these cornerstone investors believe that AIA will achieve what they promised before its IPO, then they should only consider selling after the company releases its first half results," he added.
0 comments:
Post a Comment