Bangkok Life Assurance

Bangkok Life Assurance Plc (BLA) 

 

- Interest rate downtrend is obstacle in 1Q15  

We estimate 1Q15 net profit at only B347m or a plunge of 84.7%qoq and 68.3%yoy. Net premium income is projected to grow significantly in this quarter, mostly from renewal year premium income while first-year premium income would stay flat from the prior quarter for the company has not focused on selling any particular short-term products. However, the projected growth in total premium income would still not be able to compensate for two major adverse factors as follows: 1) total underwriting expense is projected to increase significantly in 1Q15; due to the recent decrease in bond yield by 16bp, total premium reserve is projected to rise to 75.7% of total premium again in this quarter and 2) insurance claim payment and insurance policy benefit payment are projected to increase B4.77bn in total, mainly from maturity of Gain 1st 116 (one-year premium payment for five-year protection). Consequently, underwriting loss of B2.42bn is anticipated in this quarter, reversing from slight underwriting gain of B140m in 4Q14 and B228m in 1Q14. 

- Insurance business dull, investment business is hope  

We maintain our FY2015-2016 earnings forecast. 2015 is still a year of business strategy adjustment to focus more on long-term products. BLA projected total premium income to decrease by 7%yoy, especially first-year premium income which is anticipated to lower 11%yoy, and the company would switch its focus to long-term products for their higher margin and lower reserve and in order to protect its capital adequacy ratio (CAR). In addition, BLA emphasized that it would ensure good earnings or net profit despite the contracting premium income, raising confidence of investors who projected to see ROE of above 15% again; a key driver is gain from its portfolio of B198bn worth at the end of 2014. 

- Top pick of life insurance stocks  

We recommend buying BLA, which is a good choice for long-term investment. The share price has undergone substantial correction when compared with 2015 fair value (using appraisal value method) of B66.35 (embedded value is B25.03 while the rest comes from multiplier of 2014