Prudential, the London and Hong Kong-based insurance and investment group, has reported a 6% increase in first-half profit to $1.54 billion, surpassing consensus forecasts of $1 billion. However, the company’s growth in key markets such as Hong Kong and mainland China has stalled due to economic challenges in China.
Anil Wadhwani, who became chief executive 18 months ago, stated that despite these challenges, China will “continue to provide great potential.” The company’s annual premium equivalent sales, a crucial industry metric, rose by 6% to $3.11 billion but fell short of consensus expectations.
Prudential’s new business profit was recorded at $1.47 billion, a slight decrease from the previous year, which had benefited from a strong rebound in Hong Kong following the lifting of COVID-19 restrictions in China. The company is repositioning its business in anticipation of “macroeconomic headwinds” in China while expecting sustained growth from mainland Chinese visitors in Hong Kong.
The insurance giant remains optimistic about meeting its compound annual growth target of 15% to 20% for new business profit over the 2022-2027 period, citing a sales momentum increase in June that has continued into the second half of the year. Prudential emphasized that its key businesses in Asia and Africa “remain intact,” with strong demand as macroeconomic growth returns to these regions.
In June, Prudential announced a $2 billion share buyback program to enhance shareholder returns, which was slightly larger than analysts’ expectations. Despite this positive outlook, the decline in new business profit disappointed some investors, as ongoing weakness in China and Hong Kong hampers efforts to secure more profitable business.
Russ Mould, investment director at AJ Bell, remarked that Prudential’s shift towards Asia over the past decade, culminating in the divestiture of its US and European operations in 2021, has not unfolded as the company had anticipated. He compared Prudential’s results unfavorably with those of Hong Kong-based insurer AIA, which reported a significant profit increase for the first half of the year.
Prudential shares, which declared a first interim dividend up 9% to 6.84 cents, rose by 4p, or 0.6%, to 666p by lunchtime on Wednesday. The market’s positive reaction to Prudential’s numbers suggests a willingness to give the company and Wadhwani the benefit of the doubt, despite a poor performance in its shares over the past year.
Philip Kett, an analyst at Jefferies, highlighted the reassuring aspect of the results as the sales momentum pickup in June, which has continued into the second half of the year. Wadhwani expressed confidence in achieving the company’s clear strategy and objectives by 2027, including a compounded annual growth rate for new business profit of 15-20% and double-digit cash generation.
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