Bangkok Life Assurance

Bangkok Life Assurance Plc (BLA)

Investment thesis
BLA’s renewed focus on endowment products has caused us to forecast FY13 total premium growth of 21% against life assurance industry growth of only 15%. The firm guides for FY13 provisions for the life policy reserve equal to 65-66% of total premiums, down from 67% last year. Our FY13 earnings forecast is Bt4.7bn, up 43% YoY. Additionally, its YE12 value-to-new-business (VNB) of Bt1.9bn (Bt1.59/share) was 13.5% better than we expected (we had assumed FY12 VNB of Bt1.40). We conservatively maintain our YE13 target price at Bt80, pegged to a YE13 embedded value of Bt30.30/share and VNB/share of Bt49.70. Our BUY rating stands.
Anticipate 1Q13 earnings growth of 32% QoQ
We expect BLA to report a 1Q13 profit of Bt950m, up by 4% YoY and 32% QoQ (4Q12 numbers were poor because of the focus on sales of whole life products). The assumed QoQ earnings growth was driven by bigger FYP revenue on new endowment products (Gain 1st 236 and Gain 1st 350). Thus, we expect 1Q13 total premiums to post a rise of 36% YoY and 55% QoQ to Bt12bn. We estimate 1Q13 FYPs of Bt4.5bn, up 215% YoY.
Bigger proportionate Q1 2013 provisions
The 1Q13 focus on new endowment products (mostly low-margin products) would have prompted BLA to set slightly bigger proportionate provisions for its life policy reserve as a percentage of total premium revenue. We expect a ratio of 67%, up from 65.4% for the same period last year and 64% in 4Q12. That ratio is expected to decline to 65% for FY13 as a whole, as the firm will resume focus on high-margin whole life products (with lower provisions) for the remaining nine months of the year.
Slight QoQ increase in ROI for Q1 2013
We calculate 1Q13 ROI at 5.0%, up from 4.7% in 4Q12, due mainly to bigger gains on investments and higher dividend income for the quarter. We estimate 1Q13 investment income of Bt1.6bn, up by 18% YoY and 7% QoQ. We also assume that investment gains for the quarter will post a rise of 124% QoQ and 6% YoY to Bt210m. BLA’s posted FY13 ROI is forecast at 5.4%, down from 6.0% in FY12.
Strong capital; no cash call concerns
The current duration gap (mismatch period) between investment portfolio maturation (nine years) and the mean liability time-frame (14 years) is currently five years. BLA will trim that gap to less than five years in FY13 in order to reduce re-investment rate risk. That should make for a CAR of above 274% (BLA targets a CAR of 300% at YE13), much higher than the Office of the Insurance Commission’s minimum requirement of 140%.