Bangkok Life Assurance
Steady profit growth BUY (maintained) Target price to Bt54.00 Price (06/08/12): Bt46.50
Bangkok Life Assurance Plc (BLA)
Investment thesis: BLA is pushing sales of fatter margin products, such as whole life and credit protection at the expense of popular but low-yield endowment policies. Thus, revenue from total premiums is forecast to grow at a moderate rate of 10% in FY12 after hefty double-digit growth during FY09-11. Furthermore, ROI should get a boost from higher investment gains and returns from fixed-income investments in 2H12 (ROI was 5.4% last year). As such, we expect BLA’s earnings to rise at a steady pace this year and beyond. Our BUY rating stands.
Modest QoQ earnings growth for 2Q12: We expect BLA to post a 2Q12 profit of Bt960m, up 5% QoQ but down 26% YoY. The 2Q12 number rose only slightly QoQ because the firm has shifted its marketing focus to new products, such as whole-life and credit protection, which are much tougher to sell than endowment policies. However, those products allow BLA to set a lower life policy reserve than its sets for endowment policies. We estimate 2Q12 reserve provisioning of 63.5% of total premiums against the 65.4% in 1Q12. We also expect BLA to report a lower investment gain of Bt70m from its stock market investments.
2Q12 total premiums rose 5% YoY, led by RYPs: We estimate BLA’s 2Q12 market share of the life assurance market at 9.7%, which would put it in fifth place. In FY11 its market share was 9.6%. Its position within the industry is being held by Renewal Year Premiums (RYPs). Because of its shift in marketing focus from endowment policies to other products, we expect BLA’s 2Q12 FYPs to drop 16% YoY.
2Q12 ROI fell on lower investment gain: BLA should post a return on investment of 4.74% for 2Q12, down from 5.6% the previous quarter. The contraction is due to lower dividends received on investments and smaller investment gains. Our 2Q12 net investment income projection (excluding investment gains) is Bt1.34bn, up 20% YoY and flat QoQ. We also expect BLA to report an investment gain of Bt70m for the quarter, down from Bt198m in 1Q12 and Bt124m in 2Q12.
