Bangkok Life Assurance

Bangkok Life Assurance Plc (BLA)

Premium outlook changes significantly though profit decreases
BLA’s management confirmed that its strategy adjustment over the past 2
years has already been on the right track and it would generate more
sustainable income and profit in the long run albeit with some impacts on the
company’s net profit in the past that made ROE in 9M12 decrease to only
22.2% from 40% in the same period last year. In terms of overall premium
income, first year premium which comprises 29% of total premium income
still failed to meet the target (-4.5%yoy or comprising only 69% of FY2012’s
target for the growth of 12.6%yoy), especially for first year premiums from
Bancassurance and sale agents because the company has changed to focus
more on life insurance products rather than endowment products (life
insurance products are less popular among clients but have higher margin
from low premium reserves and a benefit regarding tax expense) and
because sales agents of BLA’s partner bank, BBL, have expertise in
endowment product selling. These are the main factors making first year
premium income in 9M12 lower than the target. Only renewal year premium
could beat the projection, as detailed in the table on the next page. However,
in 4Q12 the company would launch a new endowment product, Gain 1st 350,
through Bancassurance, which would make first year premium grow as
targeted.

4Q12’s profit to grow 11.9%qoq as supported by Gain 1st 350
We maintain net profit forecast for FY2012-2013, projecting thin net profit
growth of 1.5%yoy and 8.2%yoy in 2012 and 2013 respectively. Moreover,
we project earnings in 4Q12 to grow 11.9%qoq. Although the company has
issued new endowment product, Gain 1st 350 (5 years premium payment
and 10 years protection), to boost the growth of premium income in 4Q12
through Bancassurance again (which will help increase fee income of BBL that
is now lower than the target), the product needs high premium reserves that
will make income tax expense rise, so we do not foresee further net profit
growth in 4Q12.

Reiterate “hold to receive dividend”. Only small chance to outperform SET
We reiterate our recommendation of “hold to receive dividend” although the
current share price has substantially reflected pressure from the business
strategy adjustment. Fair value in 2013 after the adjustment is B49.80
respectively (embedded value in 2013 is B24.33, while VNB in 2013 is
B25.46); the current share price has around 13% upside. Accordingly, there
is a small chance for BLA to outperform the SET as its EPS growth is lower
than the market’s.