Bangkok Life Assurance

Bangkok Life Assurance Plc (BLA)
Investment thesis
We expect BLA to deliver strong earnings growth, led by higher margin products in a favorable industry environment. Thus, our profit forecasts remain Bt4.7bn for FY13, up 43% YoY, and Bt5.4bn for FY14, up 15% YoY. Lower provisioning requirements for the life policy reserve than currently assumed would mean scope for upside to our earnings projections (as would higher interest rates next year). We maintain our BUY rating with a YE14 target price of Bt75, pegged to embedded value of Bt30.30/share and total VNB of Bt44.8. BUY!
Anticipate 3Q13 earnings growth of 36% YoY
Our model indicates that BLA will report a 3Q13 profit of Bt1.15bn, up 36% YoY but down 21% QoQ. The assumed QoQ earnings contraction is largely due to seasonality—lower RYP income—but we also expect higher proportionate provisioning for life policy reserve for the quarter. 3Q13 FYPs (plus single-premium) revenue grew by 80% QoQ and 21% YoY to Bt2.36bn. 3Q13 total premiums posted a rise of 10.1% YoY (but a decline of 7.8% QoQ) to Bt8.5bn.
Heavier proportionate provisioning in 3Q13
The 3Q13 focus on new endowment products (mostly single-premium products) would have prompted BLA to set slightly bigger provisions for its life policy reserve as a percentage of total premium revenue. We expect a ratio of 69%, up from 67% for the same period last year and 64% in 2Q13. That ratio is expected to decline to 65% for 4Q13 onward, as BLA will then resume focus on high-margin whole life, credit life and longer term endowment products.
ROI estimated at 5% for 3Q13
We calculate 3Q13 ROI at 5.0%, up from 4.9% in 2Q13, due mainly to higher dividend income for the quarter. We estimate 3Q13 investment income of Bt1,96bn, up by 26% YoY and 15% QoQ. However, we assume that investment gains for the quarter will post a dive of 57% QoQ and 36% YoY to Bt75m. For FY13, BLA looks set to achieve ROI of 5.4%, down from 6.0% in FY12.
Strong capital base; no cash call concerns
The current duration gap (mismatch period) between investment portfolio maturation (nine years) and the mean liability time-frame (12.7 years) is currently 3.6 years. BLA will trim that gap to less than three years in FY13 in order to reduce re-investment rate risk. That should make for a CAR of above 243% (BLA targets a CAR of 300% at YE13), much higher than the Office of the Insurance Commission’s minimum requirement of 140%.