Bangkok Life Assurance

Bangkok Life Assurance Plc (BLA)

Profit to rebound qoq in 3Q12…premium reserves and tax expense decrease
We estimate 3Q12’s net profit at B896m, growing 10.9%qoq though still contracting 15.7%yoy due to the following reasons. 1) Premium reserves in 3Q12 are projected to decrease to 68% of total premium income after hitting 70.8% in 2Q12. Total premium income in this quarter is anticipated to shrink 34.8%qoq and 3.9%yoy for both first year and renewal year premiums. For the first year premium, BLA’s partner bank BBL is no longer focus on selling life insurance product (Whole Life 1st) like it was in 1H12 but instead emphasizes on deposit product. Moreover, renewal year
premium is projected to decrease because in 3Q12 there is not an issuance of new products like 2Q12 in which there was an issuance of savings product (endowment) which needs high reserves in the first 1-3 years. Accordingly, premium reserves expense would decrease in this quarter. 2) Income tax expense in 3Q12 is anticipated to drop 26.5% to the average income tax rate of 29.1% from 38.3% in 2Q12 due to premium reserves. This is because if premium reserves are higher than the Revenue Department criteria of 62%, they will not be counted as a tax expense. 3) income and profit from investment would remain quite stable qoq. Although interest income and dividend income would increase by 5.2%qoq, decreasing profit from securities trading would make the overall income from total investment stabilize qoq. At the same time, ROI is projected at 4.64%, down from 4.92% in the prior quarter as a result of an increase in total investment.
Overall, we project net profit in 9M12 to thrive to B2.61bn, still contracting 21.7%qoq and comprising 69% of our FY2012’s net profit forecast.

Cut 2012-2013’s forecast…4Q12’s profit to stay flat qoq despite growing premium
We revise down our net profit forecast for FY2012-2013 respectively by 8.5% and 22.3% to reflect our underestimation of premium reserves and income tax expense. Earnings in 4Q12 are projected to only stay flat qoq. Although the bank has issued new savings product, Gain 1st 350 (5 years premium payment and 10 years protection), to boost the growth of premium income in 4Q12 through Bancassurance again (which will help increase fee income of BBL that is now lower than the target), the product needs high premium reserves that will make income tax expense rise, so we do not foresee net profit growth in 4Q12.

Reiterate to hold
We reiterate our recommendation of “hold to receive dividend” although the current share price has substantially reflected pressuring factors from the business strategy adjustment. Fair value in 2012-2013 after the adjustment is B45.20 and B49.80 respectively (embedded value in 2012-2013 is B24.16 and B24.33, while VNB in 2012-2013 is B23.15 and B25.46 respectively), but the current share price does not have upside left. We, therefore, recommend investors to switch to THRE (BUY:[email protected]) which has better upside.