Bangkok Life Assurance

Bangkok Life Assurance (BLA)
- 3Q13 profit to weaken qoq. Premium stays flat but provision normalizes
We estimate BLA’s net profit in 3Q13 at B1.25bn, contracting more than 13.3%qoq
(though still growing 49.2%yoy) due mainly to a profit from the life insurance business in
3Q13 that has fallen 83.1% to B58m (but reversing from a loss of B71m in 3Q12).
Although net premium income in this quarter is projected to grow 4.4%qoq and
24.6%yoy after the company started to sell a long-term life insurance product – Whole
life 1st 175 again since August 2013 (this product used to be sold in 2012) in order to
boost the first year premium income. Renewal year premium income, at the same time,
would show normal growth as there would not be maturity of life insurance premium
(Gain 1st 330 with four-year maturity) like it was in 2Q13. As a result, net life insurance
premium income in 9M13 would increase 19.6%yoy, higher than FY2013’s target the
company expected at 17.3%yoy and close to the industry’s growth, thus helping alleviate
pressure about the life insurance premium income growth in 4Q13. However, underwriting
expense in 3Q13 is anticipated to escalate 7.9%qoq and 22.7%yoy, mostly an increase in
the premium reserve expense by 8.7%qoq and 24.9%yoy. Total premium reserve to total
premium income ratio in 3Q13 would normalize to 67%, versus 64.4% in 2Q13, because
the company has been able to reduce some high provision. For the investment business,
income and returns from investment in 3Q13 would shift slightly by 2.9%qoq and
15.6%yoy. ROI would stay flat from the prior quarter at 5.03%, mainly from an increase
of an interest income from bond and debt instrument portfolio that has enlarged following
larger investment portfolio. Meanwhile, profit and dividend from equity instrument
portfolio would decrease along with the market fluctuation. The effective tax rate in this
quarter would equate to 18.3%, close to that of 2Q13, quite low when compared with the
quarterly average in the past several years because the company has changed to use a
policy of deferred tax since early 2013.
- Maintain forecast. Net profit to grow again in 4Q13
We maintain our earnings forecast for FY2013-2014, projecting the net profit growth at
50.1%yoy and 23.9%yoy, respectively. 9M13 net profit would comprise 74% of our
FY2013 net profit forecast. We believe BLA would implement a more aggressive marketing
strategy in 4Q13, which would boost the net profit from 3Q13. BLA would focus on selling
short-term saving life insurance product (mostly though bank) and long-term whole life
insurance product (mostly through sale agents) in 4Q13 in order to increase the total
premium income growth, although it has already high when compared with the target.
This would help keep the market share. Total premium reserve expense to premium
income ratio in 4Q13 would stay close to that of 3Q13 as the increased premium reserve
for short-term premium would be negated by a benefit from maturing short-term
premium of B2bn in this quarter.
- Reiterate BUY. Share price lower than fair value. Profit outlook stabilizes
We reiterate our BUY recommendation. The business has begun to show stronger growth.
The current share price has more than 23% upside from 2013 fair value at B80.15 (2013
embedded value anticipated at B28.56 and VNB at B51.59).