Bangkok Life Assurance

Bangkok Life Assurance Plc (BLA)

Investment thesis: BLA will set provisions for its life policy reserve at close to last year’s level of 65% of total premiums. The high provision-setting is aimed at building long-term earnings growth—all provisions will be allocated to new investments and will be tax-deductible. Thus, we maintain our conservative profit forecasts at Bt3.7bn for FY12, up 8% YoY, and Bt4.5bn for next year, up 20%. The scope for FY12 earnings upside will be depend on first-year premium sales growth and/or ROI beating our assumption of 5.3%. Our BUY rating stands.  
FY12 FYP growth target of 12.6%: BLA’s FY12 FYP target is Bt9.6bn, up 12.6% YoY. Furthermore, it has set an FY12 total premium revenue expansion target of 9.9% YoY to Bt35bn. Those objectives are based on a normalized post-flooding operation. Note that our FY12 total premium expansion assumption of 11% YoY is somewhat more bullish than management’s target.  
BLA expects FY12 ROI of 5%: ROI will drop from 5.3% in FY11 to about 5% in FY12, according to management, due to a lower policy interest rate and lower investment gains from equities and dividends. Note that 4Q11 ROI was low at 5.1%, as BLA didn’t book any investment gains during the quarter. We forecast its FY12 ROI at 5.3%.
High provisions for life policy reserve: Life policy reserve provisioning is targeted at 65-67% of total premiums in FY12, close to the 65% set last year. The heavy provisions will cover new product initiatives and expand the invested asset base (and be tax-deductible), making for sustainable long-term ROI growth.
High risk-based capital: At end-September 2011, BLA‘s capital adequacy ratio (CAR) was high at 197%. The minimum requirement is only 120%. Note that a new risk-based capital rule (CAR) came into force in 3Q11 at a minimum rate of 100%, which rose to 120% at YE11. BLA has a more than adequate CAR to cover operations through FY13 without any need for capital-raising.