Thaire Life Assurance

Thaire Life Assurance Plc (THRE)
Investment thesis
We have initiated coverage on THREL with a BUY rating. Based on Economic value (Embedded Value + Value of New Business (VNB), we have derived a YE14 fair value of THREL of Bt13.20/share. The IPO price of Bt9.5 indicates a 28% discount to our number, which we believe prices in the firm’s relatively low expected dividend yield of 2.9% versus BLA’s dividend yield of 1.5% for FY14. We have identified the following four major investment themes (see our full IPO report, Superlative business growth story, August 26, 2013).   
Theme #1—favorable outlook
The Thai life assurance industry’s revenue CAGR was 12.8% for 2003-12. Growth was in double digits every year during the period except 2006. The president of the Thai Life Assurance Association forecasts that life assurance premium revenue will expand 17.3% YoY in 2013, supported by GDP growth, rising personal incomes among wage and salary earners and aggressive marketing campaigns. THREL stands to benefit.
Theme #2—superior growth profile
We forecast that the company will post net profits of Bt346m for FY13 (up 56% YoY) and Bt415m for FY14 (up 20% YoY), led by life assurance premium growth, rising economies-of-scale, increasing income from its investment portfolio and the headline corporate tax cut to 20% in 2013 (from 23% in 2012). Our model indicates that THREL will deliver an impressive FY13-15 net earnings CAGR of 30%. 
Theme #3— scope for upside from bigger investment portfolio
In addition to fast business expansion, THREL plans to grow its investment portfolio in order to boost its Return on Investment (ROI). Accelerated investment portfolio growth could push ROI above our assumptions. Moreover, eventually market interest rates will start rising definitively, which would boost ROI because about 62% of the firm’s total investment portfolio comprises fixed-income instruments (average maturity of four years) and high-yield bank deposits.
Theme #4—solid capital base enables long-term expansion
The capital-raising would endow THREL with the strongest risk-based capital (RBC) in the sector of 680%, up from 554.3% at end-March 2013. Note that the Office of the Insurance Commission’s minimum requirement is only 140%. THREL already has the highest possible counter-party credit rating of A++ offered by A.M. Best (the leading global specialist insurance industry rating agency). The solid capital will enable THREL to expand business over the long-term without need for a cash call.