Thai Reinsurance

Thai Reinsurance Plc (THREL)

Exercise pre-emptive rights at THREL IPO price of Bt7.5 or below.We believe THRE’s current price does not reflect the market value of wholly-owned THAIRE Life
Assurance Plc (THREL), which is in the process of an IPO. In 1H13, THREL contributed a
large 56% of THRE’s earnings. THRE’s holding in THREL will come down to 50.83% after
the IPO. THRE is giving its shareholders pre-emptive rights to subscribe to THREL’s IPO
shares at the IPO price (29.76 THRE shares to 1 THREL share; XR on September 9),
allowing them to maintain their share of profit from THREL, whose profitability is
stronger than THRE in terms of underwriting margin and ROE. We calculate a fair
value for THREL at Bt7.5/share, based on 3.5x average 2013F and 2014F BVPS, and
recommend investors exercise their pre-emptive rights if the IPO price is no higher
than this. The IPO price is expected to be disclosed immediately before the IPO
subscription date (tentatively on 26-30 September).
B/S clean up for additional flood claims. THRE is considering taking part of the
gain from selling THREL in its IPO to make a bullet booking in 3Q13 of additional
reserves for potential flood claims to clean up its balance sheet. If we assume THREL’s
IPO price at Bt6/share (20% discount to our THREL fair value), this would translate to
realized gain of Bt1.4bn (Bt0.4/share).
Maintain Buy; cut TP. We maintain BUY on THRE, underpinned by upcoming
catalysts: IPO of THREL at the end of September, resumption of dividends in 2014 and
credit rating upgrade by S&P within the next three years, allowing THRE to return to
the international reinsurance market. However, we cut target price to Bt5.4/sh (3x
average 2013F and 2014F BVPS plus Bt0.73/share for value of post-IPO holding in
THREL) from Bt6/sh to reflect the potential larger-than expected additional reserve
related to the 2011 flood claims, which is expected to be booked in 3Q13.