Bangkok Life Assurance

Bangkok Life Assurance Plc (BLA)

1Q13 profit was 2.9% below our number
BLA posted 1Q13 earnings of Bt922m, down 9% YoY but up 28% QoQ. The result was 2.9% below our estimate and the Bloomberg consensus, attributable to heavier provisioning for the life policy reserve than modeled. Note that BLA’s 1Q13 provisions equaled 76.3% of its total insurance premiums; we had assumed a ratio of 67.5%. 1Q13 profit represents 20% of our FY13 forecast of Bt4.7bn.
Results highlights
1Q13 FYPs jumped by 215% YoY and 162.3% QoQ to Bt4.5bn, led by the launch of a new endowment product (“Gain 1st 350”) during the quarter. As such, 1Q13 total premiums grew by 47% YoY and 68% QoQ to Bt13bn. During the quarter, BLA sets provisions for its life policy reserve equal to 76.3% of total premiums, compared with 64.2% for 4Q12 and 65.4% in the same period last year. Provisions increased because BLA shifted its sales emphasis to endowment policies. Furthermore, the firm set an extra provision of Bt100m-200m for interest rate risk.  
ROI rose to 5.2% from 4.7% in 4Q12 (slightly above our estimate of 5%), due to a bigger return on fixed-income investments. 1Q13 investment income was Bt1.68bn, up by 25% YoY and 14% QoQ, driven by investment asset expansion and good equity portfolio management. BLA booked a net investment gain of Bt179m, down 4% YoY (but up 91% QoQ).
Outlook
We expect the firm to launch more endowment products in FY13 in order to build its ranking to 5th from 6th last year. It has FY13 growth targets of 41% for FYPs and 18% for total premiums. Additionally, the firm will book a Bt730 windfall deduction from net deferred tax assets, so its effective tax rate this year should be below 20%; it was 31% for FY12. Note that its 1Q13 corporate tax rate was 16.6%, down from 21.2% in the same period last year (restated from 28% initially) and 26.8% in 4Q12.
What’s changed?
Given very strong growth in FYPs and total premiums in 1Q13, BLA’s stated FY13 FYP growth target of 41% looks achievable (we currently model for 21% FYP growth). It also has a tax credit of Bt700m to burn off. Our FY13 profit forecast of Bt4.7bn stands for the moment, but we will attend the analyst meeting and update our model next week.
Recommendation
We expect BLA to switch sales focus from endowment products in 1Q13 back to whole life and credit protection in 2Q13 onward, which will boost its profitability, as it won’t have to set such high provisions for the life policy reserve. Given its favorable long-term earnings outlook, we maintain our BUY rating with a YE13 target price of Bt80, based on embedded value of Bt30.3/share and VNB of Bt49.7/share.