Bangkok Life Assurance

Bangkok Life Assurance Plc (BLA)
 

Investment thesis: BLA looks set to build its business this year through an aggressive sales campaign using both commissioned agents and bancassurance and expanding sales of fat-margin products (as against plain vanilla endowment policies).  Furthermore, ROI should get a boost from higher interest rates in 2H12 (it was 5.4% last year). As such, we see scope for upside to our FY12-13 BLA earnings forecasts. Our BUY rating stands.  
V-shaped earnings recovery from the flooding: We expect BLA to post a 1Q12 profit of Bt890m, up by 1,085% QoQ. The 4Q11 number was hit by the flooding, which meant much lower sales of endowment policies than usual for the fourth-quarter; the firm also set a heavy life policy reserve equal to 78.5% of total premiums during that quarter. We estimate lighter 1Q12 reserve provisioning of 67% of total premiums, which would still be substantially more than the 60.3% set for 1Q11 (the 6.3% difference in provisioning means that the bottom-line will be 10% lower than we would otherwise have assumed). We also expect BLA to report an investment gain of Bt90m from its stock market investments.
1Q12 revenue improved after flooding: The firm ranked fifth in the industry with a 9.9% market share of total life assurance premiums in 1Q12, up from 9.6% in FY11, thanks to aggressive sales campaigning. BLA announced that 1Q12 FYPs and total assurance premiums grew by 9% YoY and 12% YoY, respectively, to Bt1.4bn and Bt9.0bn, in line with its full-year target.
1Q12 ROI up slightly: We expect a return on investment (ROI) of 5.22% for 1Q12, up from 5.1% the previous quarter. The expansion is due to higher dividends received on investments and some investment gains. Our 1Q12 net investment income projection (excluding investment gains) is Bt1.35bn, up by 27% YoY and 4% QoQ. We also expect BLA to report an investment gain of Bt90m for the quarter, a turnaround from the investment loss of Bt4m for 4Q11 (it posted an investment gain of Bt35m for 1Q11).
Outlook
Profit recovery—no flooding and lower life policy reserve provisioning: We expect BLA to post a 1Q12 profit of Bt890m, up by 1,085% QoQ. The 4Q11 number was hit by the flooding during the quarter, which meant much lower sales of endowment policies; the firm also set a heavy life policy reserve equal to 78.5% of total premiums during that quarter in order to cover for the possibility unrealized losses on interest rates. We estimate lighter 1Q12 reserve provisioning equal to 67% of total premiums, which would still be substantially more than the 60.3% set for 1Q11 (the 6.3% difference in provisioning means that the bottom-line will be 10% lower than we would otherwise have assumed). We also expect BLA to report an investment gain of Bt90m from its stock market investments.  
Good market share in 1Q12: BLA’s total assurance premiums in 1Q12 totaled Bt9.0bn, up by 14% YoY and 6% QoQ. Its market share rose to 9.9% from 9.6% in 4Q11 (and for FY11), supported by aggressive commission agent and bancassurance marketing. We conservatively expect the firm to report a total premium market share of 9.6% for FY12, comparable with its position last year. Our FY12 total net premium estimate is Bt34bn, up 10% YoY, somewhat below the industry growth rate of 15%, but BLA is pushing fatter-margin products to its clients (as against plain vanilla endowment policies), so its profit from sales should rise significantly more than the industry mean. Note that 1Q12 industrywide insurance premium revenue totaled Bt91.1bn, up 17% YoY.
ROI up slightly, due to better investment gain in 1Q12: We model for an investment gain of Bt90m, led by BLA’s equities trading portfolio. Note that the SET rose 17% to 1,197 during the quarter. Our 1Q12 ROI estimate is 5.22%, up from 5.1% the previous quarter. Currently, 80% of BLA’s investment portfolio is in long-term bonds and debentures (mostly issued by the government and state-owned enterprises). Note that the firm posted a net investment loss of Bt4m for 4Q11, due to an unfavorable equity market during that quarter. Also keep in mind that BLA has a very conservative hold-to-maturity approach (not marked-to-market) for long-term debt instruments. Therefore, it doesn’t book investment losses (or gains) on bonds if their prices fall (or rise) in tandem with interest rate trends.