Bangkok Life Assurance

Bangkok Life Assurance Plc (BLA)

3Q12’s profit recovers qoq…premium reserves and tax expense decrease
BLA reported 3Q12’s net profit at B844m, slightly lower than our projection
with the growth of only 4.5%qoq but a contraction of 20.6%yoy due to the
following reasons. 1) Premium reserves in 3Q12 decreased to 66.9% of total
premium income – better than expected- after hitting 70.8% in 2Q12. Total
premium income in this quarter shrank 23.5%qoq but still grew 12.8%yoy
(better than expected) for both first year and renewal year premiums as we
have previously reported. For the first year premium, BLA’s partner bank BBL
has no longer focused on selling life insurance product (Whole Life 1st) like it
was in 1H12 but instead emphasizes on deposit product. Moreover, renewal
year premium has decreased because in 3Q11 there was not an issuance of
new products like 2Q11 in which there was an issuance of savings product
(endowment) which needs high reserves in the first 1-3 years. Accordingly,
premium reserves expense has declined in this quarter. 2) Income tax
expense in 3Q12 dropped 31.1%qoq to the average income tax rate of 29% -
slightly better than expected - 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 grew respectively by 15.8%qoq and
19.4%yoy – better than expected – mainly from an increase of interest and
dividend income (+14.9%qoq) and profit from securities trading
(+19.1%qoq), with average ROI of 5.43%, up from 4.92% in 2Q12. Overall,
BLA’s net profit in 9M12 thrived to B2.56bn, still contracting 23.2%yoy and
comprising 74% of our FY2012’s net profit forecast.


4Q12’s profit to grow 11.9%qoq thanks to Gain 1st 350
We maintain net profit forecast for FY2012-2013, projecting thin net profit
growth of 1.5%yoy and 8.2%yoy in 2012 and 2013 respectively. Moreover,
we project earnings in 4Q12 to grow 11.9%qoq. Although the company 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 further net profit growth
in 4Q12.


Reiterate “hold to receive dividend”. Only small chance to outperform SET
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 2013 after the adjustment is
B49.80 respectively (embedded value in 2013 is B24.33, while VNB in 2013 is
B25.46); the current share price has around 13% upside. Accordingly, there
is a small chance for BLA to outperform the SET as its EPS growth is lower
than the market’s.