Analyst Note| Henry Heathfield, CFA |
We think Prudential looks set to return to more normal levels of growth as China and Hong Kong emerge from lockdown. The business has experienced a substantial contraction in new business contributions as China and Hong Kong have been in severely restricted conditions due to the policy of zero-COVID. We think the market is estimating those lower levels of growth into the future because if we use those growth levels, we get to a share price equal to the current market value. However, we think these lower levels of growth will not last forever and that traffic from China to Hong Kong is starting to return albeit at muted levels. Prior to the pandemic these numbers of visitors to Hong Kong from mainland China were around 350,000 a month and during the pandemic that fell to around 4,000. That is now creeping back above 50,000 and the recent relaxing of restrictions point to a continued emergence from this situation. That gets us most of the way to our estimate of fair value.