Bangkok Life Assurance

Bangkok Life Assurance Plc (BLA) 

 

Investment thesis

BLA continues to sell more long-term products in FY16, such as medium-term endowments, pensions, protections and riders. All need medium provisions for their life-policy reserves lower than we currently assume. BLA has set a big target for total premium growth (25%), which is far above our number of 13%. These imply scope for upsides to our FY16 earnings after its total premium dipped 14% in FY15. Yet, taking a conservative stance, we have maintained our FY16 profit forecasts of Bt3bn for FY16, down 27%YoY, before rising 32% in FY17 to Bt4bn. Our BUY rating stands with a YE16 TP of Bt52, pegged to embedded value of Bt31.67/share and total VNB of Bt20.35/share.

Ambitious target FY16 FYP of Bt22bn, led by riders and protection

BLA still focuses on long-term products and medium-term policies in FY16 (whole life, credit life, pension and medium-term endowments such as Gain 1st 245 plus). The strategy intends to drive both the top and bottom lines. The firm targets an ambitious total premium growth of 24.5% to Bt55bn and FYP growth of 61% to Bt22bn in FY16. Note we forecast that its FY16 FYP and total premium will grow 20% and 13%, respectively. We see scope for upside if BLA can reach its targets.

FY16 provision is set at 67-68%, down from 70.4% in FY15

The emphasis on medium-long-term products in FY16 will mean lower provisions for the life-policy reserve in FY16 against last year (excluding extra provision for interest rate risk), following heavy FY15 provisions of Bt31bn (about 70.4% of total premiums). BLA guides for FY16 provisions to come in the range of 67-68% of total premiums, which is far below our conservative number of 71% (including extra provision for interest rate risk of Bt2bn). 

Maintain ROI target of 4.7-4.8% in FY16

Management reaffirmed FY16 ROI of 4.75% (excluding investment gain) following 5.0% in FY15. The possibility of low bond yields early in the year would force BLA to seek high-dividend stocks and long-term foreign bonds with high yields of over 6.5%. The firm invests Bt30bn (13% of total investments) in equities, unit trusts, REITs and loans that yield about 6-7%. We conservatively forecast BLA to have FY16 ROI of 4% (excluding investment gains), which is far below BLA’s guidance.

Solid CAR to drive long-term expansion without capital-raising

Given its rising investment in risky assets in FY15, BLA’s CAR dropped to 310% in 4Q15 from 409% in 3Q15. Management guides that a current CAR will allow BLA to be more aggressive with higher-yield assets (such as structured notes, REITs and infrastructure funds) in order to strengthen its ROI as well in FY16. Note that the firm has set the comfort level for its CAR to stay at over 250%, which is still higher than the minimum requirement of 140% from the Office of Insurance Commission (OIC).