AXA’s Hong Kong Operations Further Under Pressure

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This story features PERPETUAL LIMITED.
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The company is included in ASX200, ASX300 and ALL-ORDS

By Rudi Filapek-Vandyck

We’ve seen quite a few market strategists advising investors should prefer non-bank financials going into the new year, but we presume fund managers are not part of this preferred group with Citi analysts feeling compelled to yet again mark-to-market this morning, leading to more cuts in earnings forecasts but also to a more benign forecast scenario for the months ahead.

Avid readers of our Daily Broker Call report will have picked up that former star performer Platinum is finding the going tough these days and even long time market darling Perpetual ((PPT))  has continually underperformed the market in attracting new funds this year.

Of course, if equity markets are going nowhere in particular, it is difficult for fund managers to report exciting returns themselves.

It would appear that AXA Asia Pacific ((AXA)) seems to have written another chapter of problems for this sector with Citi analysts reporting this morning a “substantial” amount of salaried agents has left the group in Hong Kong and this will leave a mark on the group’s new business value growth, already under pressure in the first half of the current fiscal year.

It is Citi’s insight that investors better not expect a flash second half result from Hong Kong either, with the analysts estimating the number of salaried agents who has left for greener pastures is “substantially more than 100”, furthermore, says Citi, this is likely to put further pressure on AXA’s new business value growth in Hong Kong, not just for this year but probably next year as well.

And, of course, planned profit margins will be impacted as well.

AXA has 317 salaried agents as at 30 June 2007 and a total of 3,513 agents and advisers.

Citi believes AXA will have to “prop up” its results from Hong Kong once again in a repeating exercise from the first half.

Say the analysts: “longer-term prospects continue to look favourable for AXA and it is likely to go to its AGM next year with a capital return proposal. However, with Hong Kong new business growth ex Winterthur likely to be minimal this year, we see no reason to rush into the stock at the moment”.

The broker has cut its target by 20c to $7.90 while leaving its recommendation at Hold, Medium Risk. Marking to market has lowered EPS estimates by 5.5% for fiscal 2007.

A quick look at the FNArena database has taught us the majority of experts has a positive view on the stock, as we counted five Buys (or equivalents of), four Neutrals and one Sell recommendation. The latter is from Credit Suisse.

AXA shares opened the day higher in an overall positive opening session for the ASX. At around 11am they were trading up 13c (1.76%) at $7.50.

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